<PAGE>
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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [No Fee Required]
For the fiscal year ended December 31, 1998
Commission File No. 0-6394
PACCAR INC
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(Exact name of Registrant as specified in its charter)
DELAWARE 91-0351110
(State of incorporation) (I.R.S. Employer Identification No.)
777 - 106TH AVE. N.E., BELLEVUE, WASHINGTON 98004
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (425) 468-7400
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1 par value
Preferred Stock Purchase Rights
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for at least the past 90 days. Yes X No
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 26, 1999:
COMMON STOCK, $1 PAR VALUE -- $2.931 BILLION
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The number of shares outstanding of the issuer's classes of common stock, as of
February 26, 1999:
COMMON STOCK, $1 PAR VALUE -- 78,145,449 SHARES
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the year ended December 31,
1998 are incorporated by reference into Parts I and II.
Portions of the proxy statement for the annual stockholders meeting to be held
on April 27, 1999 are incorporated by reference into Part III.
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<PAGE>
PART I
ITEM 1. BUSINESS
(a) General Development of Business
PACCAR Inc (the Company), incorporated under the laws of Delaware in 1971, is
the successor to Pacific Car and Foundry Company which was incorporated in
Washington in 1924. The Company traces its predecessors to Seattle Car
Manufacturing Company formed in 1905.
In the United States, the Company's manufacturing operations are conducted
through unincorporated manufacturing divisions. Each of the divisions are
responsible for at least one of the Company's products. That responsibility
includes new product development, applications engineering, manufacturing and
marketing.
Outside the U.S., the Company manufactures and sells through wholly owned
subsidiary companies in Australia, Mexico, the Netherlands and the United
Kingdom. An export sales division generally is responsible for export sales.
Effective June 2, 1998, the Company acquired privately-held Leyland Trucks
Limited (Leyland). Leyland is a United Kingdom truck manufacturing company with
approximately 600 employees. The Company's Netherlands truck manufacturing
subsidiary, DAF Trucks N.V. (DAF), is a major customer of Leyland. The 45 and 55
Series distribution trucks produced by Leyland are marketed exclusively in
Europe by DAF.
In Canada, the Company sells and distributes through a wholly owned foreign
subsidiary. The Netherlands subsidiary also has a manufacturing plant located in
Belgium, and uses foreign sales subsidiaries to handle export sales in the
European Community and Eastern Europe.
Product financing and leasing is offered through subsidiaries located in
North America, Australia, and the United Kingdom. Retail automotive parts are
sold through a U.S. subsidiary.
(b) Financial Information About Industry Segments and Geographic Areas
Information about the Company's industry segments and geographic areas in
response to Items 101(b), (c)(1)(i), and (d) of Regulation S-K appears on pages
46 and 47 of the Annual Report to Stockholders for the year ended December 31,
1998 and is incorporated herein by reference.
(c) Narrative Description of Business
The Company has two principal industry segments, (1) manufacture of light-,
medium- and heavy-duty trucks and related aftermarket distribution of parts and
(2) finance and leasing services provided to customers and dealers. The Company
competes in the truck parts aftermarket primarily through its dealer network.
The Company's finance and leasing activities are principally related to Company
products and associated equipment. Other manufactured products also include
industrial winches. In addition, the Company sells general automotive parts and
accessories through retail outlets.
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<PAGE>
TRUCKS
The Company and its subsidiaries design and manufacture trucks which are
marketed under the Peterbilt, Kenworth, DAF and Foden nameplates in the
heavy-duty diesel category. These vehicles, which are built in four plants in
the United States, three in Europe and one each in Australia and Mexico, are
used worldwide for over-the-road and off-highway heavy-duty hauling of freight,
petroleum, wood products, construction and other materials. Commercial trucks
and related service parts are the largest segment of the Company's business,
accounting for 92% of total 1998 revenues.
The Company competes in the North American Class 6/7 markets primarily with
conventional models. These medium-duty trucks are assembled at the Company's
Mexican subsidiary in Mexicali, Mexico and in the Seattle, Washington plant. The
Company's Canadian truck plant, which was closed in 1997 and 1998, is currently
undergoing major refurbishment. Production of medium-duty trucks is planned to
commence mid-year 1999 at this plant. This line of business represents a small,
but increasing, percentage of the Company's North American sales to date. The
Company competes in the European medium commercial vehicle market with a
cab-over-engine truck manufactured in the Netherlands. Leyland manufactures
light commercial vehicles in the United Kingdom for sale throughout Europe under
the DAF and Leyland DAF nameplates. During 1998, DAF continued its long-term
design development under an agreement with Renault V.I. for a new light-line
product.
Trucks and related parts are sold to independent dealers for resale. Trucks
manufactured in the U.S. for export are marketed by PACCAR International, a U.S.
division. Those sales are made through a worldwide network of dealers. Trucks
manufactured in Australia, Mexico, the Netherlands and the United Kingdom are
marketed domestically through independent dealers and factory branches. Trucks
manufactured in these countries for export are marketed by DAF or PACCAR
International.
The Company's trucks are essentially custom products and have a reputation
for high quality. For a majority of the Company's truck operations, major
components, such as engines, transmissions and axles, as well as a substantial
percentage of other components, are purchased from component manufacturers
pursuant to customer specifications. DAF, which is more vertically integrated,
manufactures its own engines and axles.
Raw materials and other components used in the manufacture of trucks are
purchased from a number of suppliers. The Company is not limited to any single
source for any significant component. No significant shortages of materials or
components were experienced in 1998. Manufacturing inventory levels are based
upon production schedules and orders are placed with suppliers accordingly.
Replacement truck parts are sold and delivered to the Company's independent
dealers through the Company's parts distribution network. Parts are both
manufactured by the Company and purchased from various suppliers. Replacement
parts inventory levels are determined largely by anticipated customer demand and
the need for timely delivery.
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There were four other principal competitors in the U.S. Class 8 truck market
in 1998. The Company's share of that market was approximately 21% of
registrations in 1998. There were seven other principal competitors in the
European medium and heavy commercial vehicle market in 1998, including parent
companies to three competitors of the Company in the United States. The
Company's subsidiary, DAF, had approximately a 10.5% share of the western Europe
heavy-truck market. These markets are highly competitive in price, quality and
service, and PACCAR is not dependent on any single customer for its sales. There
are no significant seasonal variations.
The Peterbilt, Kenworth, DAF, Leyland DAF and Foden nameplates are recognized
internationally and play an important role in the marketing of the Company's
truck products. The Company engages in a continuous program of trademark and
trade name protection in all marketing areas of the world.
Although the Company's truck products are subject to environmental noise and
emission controls, competing manufacturers are subject to the same controls. The
Company believes the cost of complying with noise and emission controls will not
be detrimental to its business.
The Company had a total production backlog of nearly $4 billion at the end of
1998. Within this backlog, orders scheduled for delivery within three months (90
days) are considered to be firm. The 90-day backlog approximated $1.7 billion at
December 31, 1998 compared with approximately $1.4 billion at year-end 1997.
Production of the year-end 1998 backlog is expected to be completed during 1999.
The number of persons employed by the Company in its truck business at
December 31, 1998 was approximately 18,000.
OTHER BUSINESSES
Other businesses of the Company account for 4% of total 1998 revenues. This
group includes industrial winches and PACCAR Automotive Inc., a wholly owned
subsidiary. Winches are manufactured in two U.S. plants and are marketed under
the Braden, Carco, and Gearmatic nameplates. The markets for all of these
products are highly competitive and the Company competes with a number of well
established firms.
The Braden, Carco, and Gearmatic trademarks and trade names are recognized
internationally and play an important role in the marketing of those products.
The Company has an ongoing program of trademark and trade name protection in all
relevant marketing areas.
PACCAR Automotive purchases and sells general automotive parts and
accessories through 176 retail locations under the names of Grand Auto and Al's
Auto Supply. These locations are supplied from the subsidiary's distribution
warehouses.
FINANCIAL SERVICES
In North America, Australia and the United Kingdom, the Company provides
financing principally for its manufactured trucks through six wholly owned
finance companies. These companies provide inventory financing for independent
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<PAGE>
dealers selling PACCAR products and retail and lease financing for new and used
Class 6, 7, and 8 truck and other transportation equipment sold principally by
its independent dealers. Customer contracts are secured by the products
financed.
PACCAR has a 49% equity ownership in DAF Financial Services in Europe. This
investment, which is recorded under the equity method, is not material.
PACCAR Leasing Corporation (PLC), a wholly owned subsidiary, franchises
selected Company truck dealers in North America to engage in full service truck
leasing under the PacLease trade name. PLC also leases equipment to and provides
managerial and sales support for its franchisees. The subsidiary also operates
full service leasing operations primarily in Texas on its own behalf.
PATENTS
The Company owns numerous patents which relate to all product lines. Although
these patents are considered important to the overall conduct of the Company's
business, no patent or group of patents is considered essential to a material
part of the Company's business.
RESEARCH AND DEVELOPMENT
The Company maintains technical centers dedicated to product testing and
research and development activities. Additional product development activities
are conducted within each separate manufacturing division. Amounts spent on
research and development approximated $119 million in 1998, $84 million in 1997
and $47 million in 1996.
REGULATION
As a manufacturer of highway trucks, the Company is subject to the National
Traffic and Motor Vehicle Safety Act and Federal Motor Vehicle Safety Standards
promulgated by the National Highway Traffic Safety Administration. The Company
believes it is in compliance with the Act and applicable safety standards.
Information regarding the effects that compliance with international,
federal, state and local provisions regulating the environment have on the
Company's capital and operating expenditures and the Company's involvement in
environmental cleanup activities is included in Management's Discussion and
Analysis of Financial Condition and Results of Operations and the Company's
Consolidated Financial Statements incorporated by reference in Items 7 and 8,
respectively.
EMPLOYEES
On December 31, 1998, the Company employed a total of approximately 23,000
persons.
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<PAGE>
ITEM 2. PROPERTIES
The Company and its subsidiaries own and operate manufacturing plants in five
U.S. states, four locations in Europe, and one each in Australia and Mexico.
Several parts distribution centers, sales and service offices, and finance and
administrative offices are also operated in owned or leased premises in these
and other countries. DAF operates sales subsidiaries in owned or leased premises
in various countries throughout Europe. Facilities for product testing and
research and development are located in Skagit County, Washington and Eindhoven,
the Netherlands. Retail auto parts sales locations operate primarily in leased
premises in six western states. The Company's corporate headquarters is located
in owned premises in Bellevue, Washington.
The Company considers substantially all of the properties used by its
businesses to be suitable for their intended purposes. In 1997, the Seattle
facility was used for warehousing of inventories and for some limited assembly
operations and was excluded from the table below for the year ended December 31,
1997. During 1998, the Seattle plant was utilized for production of Class 6/7
and Class 8 off-highway trucks. Accordingly, the Seattle plant has been included
in the table below for the year ended December 31, 1998. In addition, the table
below reflects the acquisition of Leyland which occurred during the second
quarter of 1998. See Item 1 for additional discussion related to the Leyland
acquisition. The Company's Canadian truck plant remained closed in 1998.
However, an agreement was reached with the Canadian and Quebec governments in
September of 1997 for PACCAR to refurbish and expand the facility. The Canadian
plant is scheduled to reopen mid-year 1999. Although no production occurred at
the Canadian location in 1998, the plant is shown as a truck manufacturing
facility in the accompanying table. The Company's remaining manufacturing
facilities operated near their productive capacities for most of 1998.
Geographical locations of manufacturing plants within indicated industry
segments are as follows:
<TABLE>
<CAPTION>
U.S. Canada Australia Mexico Europe
<S> <C> <C> <C> <C> <C>
Trucks 5 1 1 1 4
Other 2 - - - -
</TABLE>
Properties located in Torrance, California and Odessa, Texas are being held
for sale. These properties were originally obtained principally as a result of a
business acquisition in 1987.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to various lawsuits incidental
to the ordinary course of business. Management believes that the disposition of
such lawsuits will not materially affect the Company's consolidated financial
position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1998.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S EQUITY AND RELATED STOCKHOLDER MATTERS
Common Stock Market Prices and Dividends on page 49 of the Annual Report to
Stockholders for the year ended December 31, 1998 are incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA
Selected Financial Data on page 48 of the Annual Report to Stockholders for
the year ended December 31, 1998 are incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations on pages 25 through 30 of the Annual Report to Stockholders for the
year ended December 31, 1998 is incorporated herein by reference.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and qualitative disclosures about market risk on page 50 of the
Annual Report to Stockholders for the year ended December 31, 1998 is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the registrant and its
subsidiaries, included in the Annual Report to Stockholders for the year ended
December 31, 1998 are incorporated herein by reference:
Consolidated Balance Sheets
-- December 31, 1998 and 1997
Consolidated Statements of Income
-- Years Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Stockholders' Equity
-- Years Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Comprehensive Income
-- Years Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows
-- Years Ended December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
-- December 31, 1998, 1997 and 1996
Quarterly Results (Unaudited) on page 49 of the Annual Report to Stockholders
for the years ended December 31, 1998 and 1997 are incorporated herein by
reference.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The registrant has not had any disagreements with its independent auditors on
accounting or financial disclosure matters.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Item 401(a), (d), (e) and Item 405 of Regulation S-K:
Identification of directors, family relationships, and business experience on
pages 4 and 5 of the proxy statement for the annual stockholders meeting of
April 27, 1999 is incorporated herein by reference.
Item 401(b) of Regulation S-K:
Executive Officers of the registrant as of February 26, 1999:
<TABLE>
<CAPTION>
Present Position and Other Position(s)
Name and Age Held During Last Five Years
- ------------ --------------------------------------
<S> <C>
Mark C. Pigott (45) Chairman and Chief Executive Officer; Vice
Chairman from January 1995 to December 1996;
previously Executive Vice President. Mr.
Pigott is the son of Charles M. Pigott and
nephew of James C. Pigott, both directors of
the Company.
David J. Hovind (58) President since 1992.
Michael A. Tembreull (52) Vice Chairman; Executive Vice President from
January 1992 to January 1995.
Gary S. Moore (55) Senior Vice President since 1992.
Thomas E. Plimpton (49) Executive Vice President; Senior Vice
President from June, 1996 to July, 1998;
General Manager, Peterbilt Motors Company
from January, 1992 to May, 1996.
G. Don Hatchel (54) Vice President and Controller since 1991.
G. Glen Morie (56) Vice President and General Counsel since 1984.
Cor G. Baan (60) Senior Vice President since February, 1998;
President, DAF Trucks, N.V. since March,
1993.
</TABLE>
Officers are elected annually but may be appointed or removed on interim dates.
-8-
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Compensation of Directors and Executive Officers and Related Matters on pages
5 through 11 of the proxy statement for the annual stockholders meeting of April
27, 1999 is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Stock ownership information on pages 2 through 3 of the proxy statement for
the annual stockholders meeting of April 27, 1999 is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
No transactions with management and others as defined by Item 404 of
Regulation S-K occurred in 1998.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Listing of financial statements
The following consolidated financial statements of PACCAR Inc and
subsidiaries, included in the Annual Report to Stockholders for the
year ended December 31, 1998 are incorporated by reference in Item
8:
Consolidated Balance Sheets
-- December 31, 1998 and 1997
Consolidated Statements of Income
-- Years Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Stockholders' Equity
-- Years Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Comprehensive Income
-- Years Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows
-- Years Ended December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
-- December 31, 1998, 1997 and 1996
(2) Listing of financial statement schedules
All schedules for which provision has been made in the applicable
accounting regulation of the Securities and Exchange Commission are
not required under the related instructions, are inapplicable or
have been otherwise disclosed and, therefore, have been omitted.
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<PAGE>
(3) Listing of Exhibits (in order of assigned index numbers)
(3) Articles of incorporation and bylaws
(a) PACCAR Inc Certificate of Incorporation, as amended to
April 29, 1997 (incorporated by reference to the
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997).
(b) PACCAR Inc Bylaws, as amended to April 26, 1994
(incorporated by reference to the Quarterly Report on
Form 10-Q for the quarter ended March 31, 1994).
(4) Instruments defining the rights of security holders, including
indentures
(a) Rights agreement dated as of December 10, 1998 between
PACCAR Inc and First Chicago Trust Company of New York
setting forth the terms of the Series A Junior
Participating Preferred Stock, no par value per share
(incorporated by reference to Exhibit 4.1 of the
Current Report on Form 8-K of PACCAR Inc dated
December 21, 1998).
(b) Indenture for Senior Debt Securities dated as of
December 1, 1983, and first Supplemental Indenture
dated as of June 19, 1989, between PACCAR Financial
Corp. and Citibank, N.A., Trustee (incorporated by
reference to Exhibit 4.1 of the Annual Report on Form
10-K of PACCAR Financial Corp. dated March 26, 1984,
File Number 0-12553 and Exhibit 4.2 to PACCAR
Financial Corp.'s registration statement on Form S-3
dated June 23, 1989, Registration No. 33-29434).
(c) Forms of Medium-Term Note, Series F (incorporated by
reference to Exhibits 4.3A, 4.3B and 4.3C to PACCAR
Financial Corp.'s Registration Statement on Form S-3,
dated May 26, 1992, Registration Number 33-48118).
Form of Letter of Representation among PACCAR
Financial Corp., Citibank, N.A., and the Depository
Trust Company, Series F (incorporated by reference to
Exhibit 4.4 to PACCAR Financial Corp.'s Registration
Statement on Form S-3, dated May 26, 1992,
Registration Number 33-48118).
(d) Forms of Medium-Term Note, Series G (incorporated by
reference to Exhibits 4.3A and 4.3B to PACCAR
Financial Corp.'s Registration Statement on Form S-3,
dated December 8, 1993, Registration Number 33-51335).
Form of Letter of Representation among PACCAR
Financial Corp., Citibank, N.A., and the Depository
Trust Company, Series G (incorporated by reference to
Exhibit 4.4 to PACCAR Financial Corp.'s Registration
Statement on Form S-3, dated December 8, 1993,
Registration Number 33-51335).
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<PAGE>
(e) Forms of Medium-Term Note, Series H (incorporated by
reference to Exhibits 4.3A and 4.3B to PACCAR
Financial Corp.'s Registration Statement on Form S-3,
dated March 11, 1996, Registration Number 333-01623).
Form of Letter of Representation among PACCAR
Financial Corp., Citibank, N.A. and the Depository
Trust Company, Series H (incorporated by reference to
Exhibit 4.4 to PACCAR Financial Corp.'s Registration
Statement on Form S-3 dated March 11, 1996,
Registration Number 333-01623).
(f) Forms of Medium-Term Note, Series I (incorporated by
reference to Exhibits 4.3A and 4.3B to PACCAR
Financial Corp.'s Registration Statement on Form S-3
dated September 10, 1998, Registration Number
333-63153).
Form of Letter of Representation among PACCAR
Financial Corp., Citibank, N.A. and the Depository
Trust Company, Series I (incorporated by reference to
Exhibit 4.5 to PACCAR Financial Corp.'s Registration
Statement on Form S-3 dated September 10, 1998,
Registration Number 333-63153).
(10) Material contracts
(a) PACCAR Inc Incentive Compensation Plan (incorporated
by reference to Exhibit (10)(a) of the Annual Report
on Form 10-K for the year ended December 31, 1980).
(b) PACCAR Inc Deferred Compensation Plan for Directors
(incorporated by reference to Exhibit (10)(b) of the
Annual Report on Form 10-K for the year ended December
31, 1980).
(c) Supplemental Retirement Plan (incorporated by
reference to Exhibit (10)(c) of the Annual Report on
Form 10-K for the year ended December 31, 1980).
(d) 1981 Long Term Incentive Plan (incorporated by
reference to Exhibit A of the 1982 Proxy Statement,
dated March 25, 1982).
(e) Amendment to 1981 Long Term Incentive Plan
(incorporated by reference to Exhibit (10)(a) of the
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1991).
(f) PACCAR Inc 1991 Long-Term Incentive Plan (incorporated
by reference to Exhibit C of the 1997 Proxy Statement,
dated March 20, 1997).
(g) Amended and Restated Deferred Incentive Compensation
Plan (incorporated by reference to Exhibit (10)(g) of
the Annual Report on Form 10-K for the year ended
December 31, 1993).
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<PAGE>
(h) PACCAR Inc Senior Executive Incentive Plan
(incorporated by reference to Exhibit D of the 1997
Proxy Statement, dated March 20, 1997).
(13) Annual report to security holders
Portions of the 1998 Annual Report to Shareholders have been
incorporated by reference and are filed herewith.
(21) Subsidiaries of the registrant
(23) Consent of independent auditors
(24) Power of attorney
Powers of attorney of certain directors
(27) Financial Data Schedule
(a) For the 12 months ended December 31, 1998
The following schedules are submitted for certain reclassifications as
reflected in Note G in Notes to Consolidated Financial Statements -
December 31, 1998, 1997 and 1996.
(b) For the 12 months ended December 31, 1997 - restated
(c) For the 12 months ended December 31, 1996 - restated
(b) Reports on Form 8-K
A report on Form 8-K was filed on December 21, 1998 to report the
adoption of a new Preferred Share Purchase Rights Plan.
(c) Exhibits
The response to this portion of Item 14 is submitted as a separate
section of this report.
(d) Financial Statement Schedules
All schedules are omitted because the required matter or conditions are
not present or because the information required by the schedules is
submitted as part of the consolidated financial statements and notes
thereto.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
PACCAR INC
-------------------------------------
Registrant
Date: March 24, 1999 /s/ M. C. Pigott
------------------- -------------------------------------
M. C. Pigott, Director, Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated.
<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C>
/s/ M. A. Tembreull Director and Vice Chairman
- ------------------------ (Principal Financial Officer)
M. A. Tembreull
/s/ G. D. Hatchel Vice President and Controller
- ------------------------ (Principal Accounting Officer)
G. D. Hatchel
*/s/ C. M. Pigott Director and Chairman Emeritus
- ------------------------ and Audit Committee Member
C. M. Pigott
*/s/ D. J. Hovind Director and President
- ------------------------
D. J. Hovind
*/s/ J. W. Pitts Director and Chairman of
- ------------------------ Audit Committee
J. W. Pitts
*/s/ J. C. Pigott Director and Audit Committee Member
- ------------------------
J. C. Pigott
*/s/ J. M. Fluke, Jr. Director and Audit Committee Member
- ------------------------
J. M. Fluke, Jr.
*/s/ C. H. Hahn Director
- ------------------------
C. H. Hahn
*/s/ G. Grinstein Director
- ------------------------
G. Grinstein
*/s/ W. G. Reed, Jr. Director
- ------------------------
W. G. Reed, Jr.
*By /s/ M. C. Pigott
- ------------------------
M. C. Pigott
Attorney-in-Fact
</TABLE>
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<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 14(c)
CERTAIN EXHIBITS
YEAR ENDED DECEMBER 31, 1998
PACCAR INC AND SUBSIDIARIES
BELLEVUE, WASHINGTON
<PAGE>
PACCAR INC AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS:
<TABLE>
<CAPTION>
1998 1997 1996
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<S> <C> <C> <C>
Truck and Other
Sales $ 7,577.7 $ 6,479.4 $ 4,334.4
Financial Services
Revenues $ 317.1 $ 284.3 $ 267.9
- -------------------------------------------------------------------------------
Income Before Taxes:
Truck and Other $ 553.4 $ 379.6 $ 217.1
Financial Services 62.2 71.3 68.3
Gain on sale
of subsidiary 55.7
Investment Income 33.3 24.7 25.8
Other, net 4.2 3.4 1.7
Income Taxes (236.3) (190.1) (111.9)
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Net Income $ 416.8 $ 344.6 $ 201.0
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</TABLE>
OVERVIEW:
PACCAR's net income in 1998 was a record $416.8 million, or $5.30 per share
diluted, on sales of $7.6 billion. This compares to 1997 net income of $344.6
million, or $4.41 per share diluted, on sales of $6.5 billion. 1998 reflects
the consolidation of Leyland Trucks Ltd. from June 2, 1998, the date of
acquisition. Leyland's impact on PACCAR's 1998 operating results and
financial condition was not material. Net income in 1997 includes a $55.7
million ($35 million after-tax) gain on the sale of its oilfield equipment
business, Trico Industries. Results in 1996 include DAF Trucks, N.V., from
November 15, 1996, the date of acquisition.
Truck and Other income before taxes increased 46% to $553.4 million in
1998 on a 17% increase in sales. The $173.8 million increase resulted largely
from higher production levels and improved margins. The North American and
European heavy-duty truck markets reached record levels, with the Company's
market share increasing in Europe and holding steady in North America.
Operating margins improved significantly as a result of the efficiencies of
operating at higher production levels, cost reductions from global purchasing
synergies, business process improvements and higher selling prices in most
markets. Selling, general and administrative expenses increased in 1998 to
support higher production levels, research and development, systems
enhancements and meeting Year 2000 requirements.
Financial Services pretax income was $62.2 million in 1998 compared to
$71.3 million in 1997. The increased finance margin that resulted from strong
asset growth was more than offset by higher loss provisions and a one-time
write-off of capitalized costs for discontinued system development in the
U.S. finance company.
TRUCKS
The most significant segment for PACCAR continues to be Trucks, accounting
for 92% of consolidated revenues in 1998, 91% in 1997 and 87% in 1996. The
Truck segment includes all of the Company's domestic and international truck
manufacturing and related aftermarket parts distribution operations. In North
America, trucks are sold under the Kenworth and Peterbilt nameplates and, in
Europe, under DAF, Leyland DAF and Foden nameplates.
The financial impact of this segment increased in 1998 with the growth in
North American and European markets. Substantially all of PACCAR's factories
were at or near record levels of production at the end of 1998.
Peterbilt raised the production rate at its Denton, Texas, facility and
utilized skilled temporary employees at the Nashville, Tennessee, plant to
meet increased customer demand. The Nashville truck factory had a work
stoppage from May 4 to November 24, 1998. Agreement was reached on a
four-year contract with the United Auto Workers (UAW) at the Nashville plant
in November.
DAF's results increased due to continued strong customer demand for the
Model 95XF, which was named 1998 International Truck of the Year by the
European industry press.
The current economic problems in Asia and South America negatively
impacted export sales to these regions in 1998 and are forecasted to continue
in 1999. Sales and profits of this business are a minor portion of PACCAR's
overall results.
<PAGE>
As we enter 1999, orders and backlogs remain strong in the U.S. and
Canada. However, demand for trucks in those key markets could soften later in
1999. Orders and backlogs for PACCAR operations in Europe and Mexico have
declined in recent months as economic growth has slowed. Daily build rates
for trucks in those markets have been reduced, reflecting this lower demand.
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Truck Net Sales $ 7,270.4 $ 6,157.8 $ 4,019.2
- -------------------------------------------------------------------------------
Operating Profit $ 534.3 $ 376.8 $ 204.1
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
1998 COMPARED TO 1997:
PACCAR's worldwide truck sales increased 18% to $7.3 billion in 1998 on
record sales volume in excess of 93,800 trucks, solidifying PACCAR's position
as the second-largest producer of heavy-duty trucks in the world. Operating
profit from truck operations was a record $534.3 million, a 42% increase over
the $376.8 million earned in 1997.
Registrations of new heavy-duty trucks were at record levels in 1998 in
both the United States and Europe. Of the 210,000 trucks registered in the
United States, PACCAR achieved a 21% share, comparable to 1997. DAF, with a
strong product line-up led by the 95XF, achieved a 10.5% share of the 205,000
European heavy-duty market in 1998. Sales in Europe represent approximately
30% of PACCAR's total truck sales.
In Canada, PACCAR's third largest market, sales and profits in 1998 were
comparable to 1997. The favorable effects of a larger market were offset by
reduced market share. Due to the significant weakening of the Canadian
dollar, in 1998, the cost of importing trucks from PACCAR's U.S. truck
factories increased substantially, creating competitive pricing pressures.
The Company's operations in Mexico achieved higher sales and profits in
1998 over 1997. The benefit of a larger market and an increase in the
Company's market share were partially offset by lower operating margins as
competitors continued to increase their marketing efforts in the country.
Sales and profits for the Company's worldwide aftermarket parts
distribution activities continued to grow in 1998. Sales and operating
results in the United States and Europe benefited from the strong heavy-duty
truck market, growth in the population of trucks in service, and marketing
programs to promote parts sales.
In 1998, significant spending was devoted to product development,
business process improvements, and systems enhancements. Research and
development expense in 1998 amounted to $119 million, a 42% increase over
1997.
1997 COMPARED TO 1996:
PACCAR's truck revenues increased 53% to $6.2 billion in 1997 on sales volume
in excess of 79,000 trucks. Operating profit from truck operations was $376.8
million, an 85% increase over the $204.1 million earned in 1996.
The increase in sales and profit was primarily due to the acquisition of
DAF. The percentage of 1997 consolidated truck revenues from PACCAR
operations in Europe increased to over 30% in 1997, primarily due to
including DAF for a full year.
Sales and profits outside the United States and Europe increased
substantially, largely due to stronger overall markets in Mexico and
Australia. In Canada, profitability also improved in 1997 compared to 1996,
when a plant closure charge of $18.0 million pretax unfavorably impacted
results.
Sales and profits increased in 1997 over 1996 for the Company's truck
aftermarket parts distribution activities. Operating results improved due to
the rising number of heavy-duty trucks in service, and growth in the truck
parts distribution network.
OTHER BUSINESSES
1998 COMPARED TO 1997:
The Company's retail auto parts operations are located on the West Coast.
Retail revenues grew in 1998 and 1997 by adding new stores and achieving
modest gains in same store sales. The addition of new stores and better
customer service have also resulted in steady growth in profitability. Pretax
income in 1998 increased for the sixth year in a row.
PACCAR's winch business reported an outstanding year in 1998. Sales and
operating profits increased over 1997. The business benefited from strong
demand for its products in the U.S. market, and improved margins due to
favorable product mix.
<PAGE>
1997 COMPARED TO 1996:
Prior to 1997, PACCAR's other products included retail auto parts, winches
and the Company's oilfield equipment business, Trico Industries. Combined
sales in 1997 were slightly lower than 1996, due to the sale of Trico
Industries in the fourth quarter of 1997. Combined operating profits
increased in 1997, over 1996, due to higher sales volumes for both retail
auto parts and winches.
FINANCIAL SERVICES
The Financial Services segment, including PACCAR Financial Corp., PACCAR
Leasing Corporation and the Company's finance subsidiaries in Australia,
Canada, Mexico and the United Kingdom, derives earnings primarily from
financing the sale of PACCAR products.
PACCAR has a 49% equity ownership in DAF Financial Services in Europe.
This investment, which is recorded under the equity method, is not material.
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Financial Services:
Average Earning
Assets $ 3,210.3 $ 2,818.9 $ 2,723.9
Revenues $ 317.1 $ 284.3 $ 267.9
Pretax Income $ 62.2 $ 71.3 $ 68.3
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
1998 COMPARED TO 1997:
Financial Services operations earned $62.2 million before tax in 1998
compared to $71.3 million in 1997. Increased revenues from earning asset
portfolio growth in both foreign and domestic finance operations were more
than offset by higher operating expenses and a higher provision for loan
losses. The loss provision increase is consistent with the rapid growth in
earning assets. Operating expenses included a $7.5 million write-off of
capitalized systems development costs in the U.S. finance company. Overall,
credit quality of the portfolio remains good due to favorable economic
conditions and a continued focus on credit controls.
1997 COMPARED TO 1996:
Financial Services operations earned $71.3 million before taxes in 1997, up
$3.0 million or 4% compared to 1996. Increases achieved in 1997 by PACCAR's
finance company in Mexico and its leasing company in the United States were
partially offset by lower profitability in its U.S. finance company, due to
competitive market conditions in 1997.
LIQUIDITY AND CAPITAL RESOURCES:
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and cash
equivalents $ 432.4 $ 337.9 $ 222.9
Marketable
securities 404.8 357.0 304.9
- -------------------------------------------------------------------------------
$ 837.2 $ 694.9 $ 527.8
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
The Company's cash and marketable securities totaled $837.2 million at
December 31, 1998, $142.3 million more than 1997. The growth can be
attributed to record earnings in 1998, which increased cash from operations
by $215.4 million to $653.8 million. This increase was partially offset by
additional capital expenditures, higher dividends paid, the purchase of
Leyland Trucks Ltd., and cash utilized for the Financial Services operations.
The Company's strong liquidity position continues to provide financial
stability and strength.
<PAGE>
TRUCK AND OTHER
Cash for working capital, capital expenditures, systems (including Year
2000), and research and development has been provided by operations.
Management expects this method of funding to continue.
Long-term debt included the guilder-denominated note arising from the
acquisition of DAF Trucks in 1996. The remaining principal balance of this
debt was $218.5 million at December 31, 1998. Cash flows were used to make
payments on the DAF acquisition debt and to partially fund the acquisition of
Leyland Trucks in 1998. The movements in the exchange rates, from the time
the original debt was incurred to the time debt payments were made, have not
had a significant effect on the amount of cash required to repay the debt.
Expenditures for long-lived assets in 1998 totaled $187 million. PACCAR's
truck operations made significant investments in the expansion and
modernization of their facilities, including state-of-the-art systems to
improve product design capabilities and efficiencies of its business
processes, as well as new product tooling to meet the demands of an
aggressive product development plan. Over the last five years, the Company's
worldwide capital spending, excluding the Financial Services segment, totaled
over $530 million.
Spending for ongoing capital additions, product development and process
efficiencies at PACCAR is expected to be higher in 1999. PACCAR will invest
approximately $80 million in building its Canadian truck plant. An agreement
with the governments of Canada and Quebec will provide partial funding
through a public financing package. PACCAR will fund the remainder from
external borrowings, which will be repaid from operating cash flows. The
state-of-the-art facility is expected to commence production in mid-year
1999. In addition, the Company expects to make significant investments in new
product tooling, in new technology and systems to support business process
improvements, and to increase its network of retail auto parts locations.
FINANCIAL SERVICES
The Financial Services companies rely heavily on funds borrowed in capital
markets as well as funds generated from collections on loans and leases. An
additional source of funds includes capital contributions and intercompany
loans from PACCAR.
Growth in net finance receivables continues to be funded primarily with
borrowings by the finance and leasing companies. In 1998, PACCAR Financial
Corp. filed a shelf registration under which $1 billion of medium-term notes
could be issued as needed. At the end of 1998, $805 million of this
registration was still available for issuance. To reduce exposure to
fluctuations in interest rates, the Financial Services companies pursue a
policy of obtaining funds with interest rate characteristics similar to the
assets being funded. As part of this policy, the companies use
over-the-counter interest-rate contracts. The permitted type of interest-rate
contracts and transaction limits have been established by the Company's
senior management, who receive periodic reports on the amount of contracts
outstanding.
PACCAR believes its Financial Services companies have sufficient
financial capabilities to continue funding receivables and servicing debt
through internally generated funds, lines of credit and access to public and
private debt markets.
EURO CONVERSION:
PACCAR's subsidiary, DAF Trucks N.V., located in the Netherlands, has
developed a formal plan for converting to the euro. Effective January 1,
1999, DAF was ready to invoice customers, receive billings from vendors and
prepare consolidated internal and external financial reports in euros. While
some new systems will need further modification, planned revisions are on
schedule. The cost of becoming euro-compliant is not significant to PACCAR
and no incremental costs will be passed on to customers. The increased price
transparency, as a result of the euro, is not expected to have a significant
impact on overall margins in 1999, as DAF is a custom truck manufacturer and
each truck is built to customer-specification. While the long-term impact on
margins is estimated to be minimal, the ultimate impact is dependent on
future events, including market conditions. The conversion to the euro is not
expected to materially impact PACCAR's financial condition or results of
operations.
IMPACT OF ENVIRONMENTAL MATTERS:
The Company, its competitors and industry in general are subject to various
federal, state and local requirements relating to the environment. The
Company believes its policies, practices and procedures are designed to
prevent unreasonable risk of environmental damage and that its handling, use
and disposal of hazardous or toxic substances have been in accordance with
environmental laws and regulations enacted at the time such use and disposal
occurred.
Expenditures were approximately $3 million in 1998, $6 million in 1997
and $4 million in 1996 for costs related to environmental activities. The
Company does not anticipate that the effects on future operations or cash
flows will be materially greater than recent experience.
<PAGE>
The Company is involved in various stages of investigations and cleanup
actions related to environmental matters. In certain of these matters, the
Company has been designated as a "potentially responsible party" by the U.S.
Environmental Protection Agency (EPA) or by a state-level environmental
agency. At certain of these sites, the Company, together with other parties,
is participating with the EPA and other state-level agencies both in cleanup
studies and the determination of remedial action, as well as actual
remediation procedures.
The Company's estimated range of reasonably possible costs to complete
cleanup actions, where it is probable that the Company will incur such costs
and such amounts can be reasonably estimated, is between $30 million and $55
million. The Company has established a reserve to provide for estimated
future environmental cleanup costs.
In prior years, the Company was successful in recovering a portion of its
environmental remediation costs from insurers, but does not believe future
recoveries from insurance carriers will be significant.
While the timing and amount of the ultimate costs associated with
environmental cleanup matters cannot be determined, management does not
expect that these matters will have a material adverse effect on the
Company's consolidated cash flow, liquidity or financial condition.
YEAR 2000 STATUS:
GENERAL
The Company established a formal Year 2000 project in 1996 to manage PACCAR's
global compliance effort. The scope of the project includes the compliance of
(1) mainframe computer systems, (2) PC and LAN systems, (3) embedded systems
(including both the Company's internal machinery and equipment and the
Company's products), and (4) significant third parties. A steering committee
comprised of senior management monitors progress and addresses compliance
issues. Management of the Company believes it has an effective program in
place to resolve the Year 2000 issue in a timely manner.
STATUS OF THE COMPANY'S YEAR 2000 COMPLIANCE
The Company has completed the evaluation of virtually all computer systems
and applications used by the Company and its subsidiaries. PACCAR has
prioritized the non-compliant systems and expects to substantially complete
modifications to all significant systems before problems related to the Year
2000 occur. Outside specialists have been retained to assist in this process
to the extent considered necessary. Mainframe computer systems compliance
efforts are approximately 80% complete. PC and LAN systems, and embedded
manufacturing systems are both approximately 75% complete. The Company has
verified that there are no Year 2000 issues with the portion of its products
manufactured by the Company, and it has received confirmation from most major
suppliers that there are no Year 2000 issues with their components as used in
the Company's products. The Company is continuing to contact the remaining
suppliers about compliance of their components. Year 2000 compliance work is
being successfully completed along with other systems development projects.
SIGNIFICANT THIRD PARTIES
Some of the Company's Year 2000 compliance efforts are dependent on the
release of new versions of software by the software developers, which are
scheduled to be delivered in 1999. These software developers have represented
to the Company that the new releases will be delivered in time to avoid any
material Year 2000 issues with their software.
PACCAR is contacting all business critical suppliers to assess their Year
2000 efforts and take appropriate action if there is significant risk to
PACCAR's continued operation. PACCAR is also assessing the Year 2000 programs
of its independent dealers and tracking their progress toward completion.
There is regular communication with dealers, which includes the importance of
addressing the Year 2000 issue and general guidance regarding appropriate
steps to take.
<PAGE>
The Company also depends on banks and other financial institutions to
support its cash management activities and to fund the lending activity of
its financial services companies with the issuance of commercial paper and
public debt. The Company has sent letters and has received responses
indicating that banks and other financial institutions, with which it has
relationships, already are or will be compliant by the Year 2000.
To date, the Company is not aware of any significant third party,
including software developers, suppliers, dealers, banks and others, with a
Year 2000 issue that would materially impact the Company's results of
operations, liquidity or capital resources.
YEAR 2000 COSTS
The total cost to complete these projects is expected to approximate $25
million, of which $15 million has been incurred through December 31, 1998.
The Company has and expects to continue to fund the cost of these projects
from operations. All project costs are being expensed.
YEAR 2000 RISKS
The Company has not yet completed all necessary phases of its Year 2000
program. In addition, the Company has no means of ensuring that significant
third parties will be fully prepared for the Year 2000. In the event the
Company or one or more significant third parties fail to become completely
Year 2000 compliant, the most reasonably likely worst case scenario for the
Company is that manufacturing operations could be temporarily impacted.
Production at one or more of the Company's plants could be interrupted for a
period of time, which in turn could result in lost sales and profits.
Selling, general and administrative expense for the Company would likely
increase to the extent that automated functions would need to be performed
manually.
The most reasonably likely worst case scenario for the Company's
financial services companies, if some of their systems are not Year 2000
compliant, is that information and reports would contain inaccuracies that
would reduce the efficiency of payment processing and would result in
increased administrative costs and generally reduce customer service. If a
significant failure of banking systems or systems of other entities that are
key to the public debt markets occurred due to Year 2000 issues, the
financial services companies' ability to access various credit and money
markets and to process payments could be adversely affected.
In addition, the world economy could enter a recession due to widespread
interruption in commercial activity or due to diverting substantial resources
to achieve Year 2000 compliance, which could also have a materially adverse
impact on the Company.
The cumulative effect of these potential outcomes is unknown, but could
have a material effect on consolidated financial condition, results of
operations and liquidity.
CONTINGENCY PLANS
PACCAR considers alternatives in planning and scheduling Year 2000 projects.
The Company continually evaluates the status of completion of all Year 2000
projects to determine whether contingency plans should be developed or
implemented. Such plans include automated and manual workarounds, as
considered necessary.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
(millions except per share data)
<S> <C> <C> <C>
TRUCK AND OTHER:
Net sales $ 7,577.7 $ 6,479.4 $ 4,334.4
Costs and Expenses
Cost of sales 6,431.0 5,549.3 3,737.3
Selling, general and administrative 575.2 532.9 375.8
Interest 18.1 17.6 4.2
- -------------------------------------------------------------------------------------------------------------------
7,024.3 6,099.8 4,117.3
- -------------------------------------------------------------------------------------------------------------------
TRUCK AND OTHER INCOME BEFORE INCOME TAXES 553.4 379.6 217.1
FINANCIAL SERVICES:
Revenues 317.1 284.3 267.9
Costs and Expenses
Interest and other 173.8 151.5 147.6
Selling, general and administrative 67.1 53.6 46.8
Provision for losses on receivables 14.0 7.9 5.2
- -------------------------------------------------------------------------------------------------------------------
254.9 213.0 199.6
- -------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES INCOME BEFORE INCOME TAXES 62.2 71.3 68.3
Gain on sale of subsidiary 55.7
Investment income 33.3 24.7 25.8
Other, net 4.2 3.4 1.7
- -------------------------------------------------------------------------------------------------------------------
Total Income Before Income Taxes 653.1 534.7 312.9
Income taxes 236.3 190.1 111.9
- -------------------------------------------------------------------------------------------------------------------
Net Income $ 416.8 $ 344.6 $ 201.0
- -------------------------------------------------------------------------------------------------------------------
Net Income Per Share
Basic $ 5.34 $ 4.43 $ 2.59
- -------------------------------------------------------------------------------------------------------------------
Diluted $ 5.30 $ 4.41 $ 2.59
- -------------------------------------------------------------------------------------------------------------------
Weighted Average Number of Common Shares Outstanding 78.1 77.8 77.7
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31 1998 1997
- -------------------------------------------------------------------------------------------------------------------
(millions of dollars)
TRUCK AND OTHER:
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 410.3 $ 318.6
Trade and other receivables, net of allowance for losses
(1998 - $27.1 and 1997 - $20.3) 645.6 600.3
Marketable securities 404.8 357.0
Inventories 511.1 393.5
Deferred taxes and other current assets 98.2 86.7
- -------------------------------------------------------------------------------------------------------------------
Total Truck and Other Current Assets 2,070.0 1,756.1
Deferred taxes, goodwill and other 261.9 183.5
Property, plant and equipment, net 827.7 665.9
- -------------------------------------------------------------------------------------------------------------------
Total Truck and Other Assets 3,159.6 2,605.5
- -------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES:
Cash and cash equivalents 22.1 19.3
Finance and other receivables, net of
allowance for losses (1998 - $67.1 and 1997 - $57.5) 3,790.4 3,131.0
Less unearned interest (267.4) (237.1)
- -------------------------------------------------------------------------------------------------------------------
3,523.0 2,893.9
Equipment on operating leases, net 65.3 55.8
Other assets 24.8 24.9
- -------------------------------------------------------------------------------------------------------------------
Total Financial Services Assets 3,635.2 2,993.9
- -------------------------------------------------------------------------------------------------------------------
$ 6,794.8 $ 5,599.4
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS` EQUITY
December 31 1998 1997
- -------------------------------------------------------------------------------------------------------------------
(millions of dollars)
TRUCK AND OTHER:
<S> <C> <C>
Current Liabilities
Accounts payable and accrued expenses $ 1,293.9 $ 1,047.3
Current portion of long-term debt 43.8 15.0
Dividend payable 125.0 116.7
Income taxes and other 56.4 44.5
- -------------------------------------------------------------------------------------------------------------------
Total Truck and Other Current Liabilities 1,519.1 1,223.5
Long-term debt 204.3 236.6
Other, including deferred taxes 336.4 216.4
- -------------------------------------------------------------------------------------------------------------------
Total Truck and Other Liabilities 2,059.8 1,676.5
- -------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES:
Accounts payable and accrued expenses 83.6 85.8
Commercial paper and bank loans 1,617.8 1,086.7
Long-term debt 1,106.9 1,097.7
Deferred income taxes and other 162.5 154.9
- -------------------------------------------------------------------------------------------------------------------
Total Financial Services Liabilities 2,970.8 2,425.1
- -------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock, no par value - authorized 1.0 million shares, none issued
Common stock, $1 par value - authorized 200.0 million shares,
78.1 million shares issued and outstanding 78.1 77.8
Additional paid-in capital 620.2 609.9
Retained earnings 1,185.7 940.8
Currency translation and net unrealized investment gains or (losses) (119.8) (130.7)
- -------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 1,764.2 1,497.8
- -------------------------------------------------------------------------------------------------------------------
$ 6,794.8 $ 5,599.4
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
December 31 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
(millions of dollars)
COMMON STOCK, $1 PAR VALUE:
($12 PAR VALUE - 1996)
<S> <C> <C> <C>
Balance at beginning of year $ 77.8 $ 466.4 $ 466.3
Reduction in par value from $12 per share to $1 per share (427.8)
Stock split 38.9
Stock options exercised .3 .3 .1
- -------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 78.1 $ 77.8 $ 466.4
- -------------------------------------------------------------------------------------------------------------------
ADDITIONAL PAID-IN CAPITAL:
Balance at beginning of year $ 609.9 $ 219.0 $ 218.7
Reduction in par value from $12 per share to $1 per share 427.8
Stock split (38.9)
Other, including options exercised and tax benefit 10.3 2.0 .3
- -------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 620.2 $ 609.9 $ 219.0
- -------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS:
Balance at beginning of year $ 940.8 $ 757.7 $ 653.8
Net income 416.8 344.6 201.0
Cash dividends declared on common stock,
per share: 1998 - $2.20; 1997 - $2.075; 1996 - $1.25 (171.9) (161.5) (97.1)
- -------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 1,185.7 $ 940.8 $ 757.7
- -------------------------------------------------------------------------------------------------------------------
NET UNREALIZED INVESTMENT GAINS (LOSSES):
Balance at beginning of year $ .9 $ .6 $ 2.2
Net unrealized gains (losses) 1.1 .3 (1.6)
- -------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 2.0 $ .9 $ .6
- -------------------------------------------------------------------------------------------------------------------
CURRENCY TRANSLATION ADJUSTMENTS:
Balance at beginning of year $ (131.6) $ (85.7) $ (89.8)
Translation gains (losses) 9.8 (45.9) 4.1
- -------------------------------------------------------------------------------------------------------------------
Balance at end of year $ (121.8) $ (131.6) $ (85.7)
- -------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity $ 1,764.2 $1,497.8 $ 1,358.0
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
December 31 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
(millions of dollars)
<S> <C> <C> <C>
Net income $ 416.8 $ 344.6 $ 201.0
Other comprehensive income, net of tax:
Currency translation adjustments 9.8 (45.9) 4.1
Net unrealized investment gains (losses) 1.1 .3 (1.6)
- -------------------------------------------------------------------------------------------------------------------
Net other comprehensive income (loss) 10.9 (45.6) 2.5
- -------------------------------------------------------------------------------------------------------------------
Comprehensive Income $ 427.7 $ 299.0 $ 203.5
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
(millions of dollars)
OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 416.8 $ 344.6 $ 201.0
Items Included in Net Income Not Affecting Cash:
Depreciation and amortization 123.9 112.0 81.1
Provision for losses on financial services receivables 14.0 7.9 5.2
Gain on sale of subsidiary (55.7)
(Gain) Loss on sale of property, plant and equipment 4.7 (4.4) (4.7)
Other 53.0 8.5 16.5
Change in Operating Assets and Liabilities:
(Increase) Decrease in assets other than cash and equivalents:
Receivables (39.0) (108.5) (39.5)
Inventories (88.0) (44.9) 33.9
Other (2.0) (15.7) (10.6)
Increase (Decrease) in liabilities:
Accounts payable and accrued expenses 175.0 179.6 86.6
Other (4.6) 15.0 (11.2)
- -------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 653.8 438.4 358.3
INVESTING ACTIVITIES:
Finance receivables originated (1,973.6) (1,509.9) (1,318.0)
Collections on finance receivables 1,332.9 1,248.6 1,164.5
Net decrease (increase) in wholesale receivables (50.6) 37.8 63.3
Marketable securities purchased (1,286.3) (2,307.9) (2,036.5)
Marketable securities sales and maturities 1,265.3 2,256.5 2,183.3
Proceeds from sale of subsidiary 105.0
Acquisition of businesses (75.2) (465.2)
Acquisition of property, plant and equipment (192.9) (107.0) (108.7)
Acquisition of equipment for operating leases (29.9) (26.0) (14.5)
Proceeds from asset disposals 44.3 41.7 43.7
Other 6.0 1.9 (.4)
- -------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (960.0) (259.3) (488.5)
FINANCING ACTIVITIES:
Cash dividends paid (163.6) (103.1) (155.5)
Stock option transactions 6.6 2.3 .4
Net (decrease) increase in notes payable (347.4) 347.4
Net increase in commercial paper and bank loans 539.4 133.8 22.5
Proceeds from long-term debt 612.1 801.7 426.8
Payments on long-term debt (582.0) (582.8) (469.7)
- -------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities 412.5 (95.5) 171.9
Effect of exchange rate changes on cash (11.8) 31.4 (2.8)
- -------------------------------------------------------------------------------------------------------------------
Net Increase in Cash and Cash Equivalents 94.5 115.0 38.9
Cash and cash equivalents at beginning of year 337.9 222.9 184.0
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 432.4 $ 337.9 $ 222.9
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996 (CURRENCIES IN MILLIONS)
A. SUMMARY OF ACCOUNTING POLICIES
Organization: PACCAR Inc (the Company or PACCAR) is a multinational company
with its largest operations in the United States and Europe. The Company's
Truck and Financial Services segments also have operations in Canada,
Australia and Mexico.
Principles of Consolidation: The consolidated financial statements
include the accounts of the Company and its wholly owned domestic and foreign
subsidiaries. All significant intercompany accounts and transactions are
eliminated in consolidation.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Cash, Cash Equivalents and Marketable Securities: Cash equivalents
consist of short-term liquid investments with a maturity at date of purchase
of three months or less. Cash equivalents were $410.3 and $281.1 at December
31, 1998 and 1997, respectively. The Company's investments in cash
equivalents and marketable securities are classified as debt securities
available-for-sale. These investments are stated at fair value with any
unrealized holding gains or losses, net of tax, included as a component of
stockholders' equity until realized.
The cost of debt securities available-for-sale is adjusted for
amortization of premiums and accretion of discounts to maturity. Amortization
of premiums, accretion of discounts, interest and dividend income are
included as a component of investment income. The cost of securities sold is
based on the specific identification method.
Inventories: Inventories are stated at the lower of cost or market. Cost
of inventories in the United States is determined principally by the last-in,
first-out (LIFO) method. Cost of all other inventories is determined by the
first-in, first-out (FIFO) or the weighted average method.
Goodwill: Goodwill is amortized on a straight-line basis for periods
ranging from 20 to 27 years. At December 31, 1998 and 1997, goodwill amounted
to $106.4 and $100.8, net of accumulated amortization of $16.9 and $11.7,
respectively. Amortization of goodwill totaled $4.7 in 1998, $5.1 in 1997 and
$2.0 in 1996. Annual amortization expense is impacted by the effect of
movements in the exchange rate used to translate amounts from the Company's
foreign subsidiaries.
Property, Plant and Equipment: Property, plant and equipment are stated
at cost. Depreciation of plant and equipment is computed principally by the
straight-line method based upon the estimated useful lives of the various
classes of assets, which range as follows:
Machinery and equipment 5-12 years
Buildings 30-40 years
Environmental: Expenditures that relate to current operations are
expensed or capitalized as appropriate. Expenditures that relate to an
existing condition caused by past operations and which do not contribute to
current or future revenue generation are expensed. Liabilities are recorded
when it is probable the Company will be obligated to pay amounts for
environmental site evaluation, remediation or related costs, and such amounts
can be reasonably estimated.
Revenue Recognition: Substantially all sales of trucks and related
aftermarket parts are recorded by the Company when products are shipped to
dealers or customers. Generally, interest income from finance receivables is
recognized using the interest method.
Estimated Credit Losses: The provision for losses on net finance and
other receivables is charged to income in an amount sufficient to maintain
the allowance for losses at a level considered adequate to cover estimated
credit losses. Receivables are charged to this allowance when, in the
judgment of management, they are deemed uncollectible (usually upon
repossession of the collateral).
Derivative Financial Instruments: The Company does not engage in
derivatives trading, market-making or other speculative activities. The
Company enters into agreements to manage certain exposures to fluctuations in
interest rates and foreign exchange. It uses interest-rate contracts to match
the interest rate characteristics of the Company's finance receivables with
the borrowings used to fund those receivables. Interest-rate contracts
generally involve the exchange of fixed and floating rate interest payments
without the exchange of the underlying principal. Net amounts paid or
received are reflected as adjustments to interest expense.
To mitigate the effect of changes in currency exchange rates, PACCAR
regularly enters into currency exchange contracts to hedge its net foreign
currency exposure. Gains and losses on these contracts are deferred and
included in the measurement of the related foreign currency transaction when
completed.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996 (CURRENCIES IN MILLIONS)
PACCAR has currency exchange exposure for the U.S. dollar compared to the
Canadian dollar. With respect to Europe, PACCAR has currency exposure for the
Dutch guilder compared to the British pound. When the U.S. dollar or the
Dutch guilder strengthens relative to the Canadian dollar or the British
pound, the translated value of sales in the other currencies decreases. When
the U.S. dollar or the Dutch guilder weakens, the translated value of sales
in the other currencies increases. Overall, PACCAR is a net receiver of
Canadian dollars and British pounds and benefits from a weaker U.S. dollar or
Dutch guilder.
Research and Development: Research and development costs are expensed as
incurred. Amounts charged against income were $119.0 in 1998, $84.0 in 1997
and $47.0 in 1996.
NEW ACCOUNTING STANDARDS: In June, 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standard (SFAS) No.
133, ACCOUNTING FOR DERIVATIVE AND HEDGING ACTIVITIES. PACCAR will adopt SFAS
133 in the first quarter of 2000. The impact of adoption is not expected to
be material to PACCAR's consolidated financial position or results of
operations.
Reclassifications: Certain prior-year amounts have been reclassified to
conform to the 1998 presentation.
B. INVESTMENTS IN DEBT SECURITIES
All investments in debt securities were classified as available-for-sale at
December 31, 1998 and 1997. Amounts at December 31, 1998, were as follows:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
U.S. government securities $ 65.9 $ 66.3
Tax-exempt securities 325.1 327.3
Other debt securities 421.0 421.5
- -------------------------------------------------------------------------------
$812.0 $815.1
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
Amounts at December 31, 1997, were as follows:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
U.S. government securities $ 84.9 $ 85.2
Tax-exempt securities 353.6 355.0
Other debt securities 197.9 197.9
- -------------------------------------------------------------------------------
$636.4 $638.1
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
Fair value of investments in debt securities were included in cash and
equivalents and marketable securities as follows:
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Truck and Other:
Cash and equivalents $404.9 $275.7
Marketable securities 404.8 357.0
Financial Services:
Cash and equivalents 5.4 5.4
- -------------------------------------------------------------------------------
$815.1 $638.1
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996 (CURRENCIES IN MILLIONS)
The contractual maturities of debt securities at December 31, 1998, were
as follows:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
Maturities in:
One year or less $445.5 $445.0
One to five years 355.8 359.1
Five to ten years 10.7 11.0
- -------------------------------------------------------------------------------
$812.0 $815.1
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
Gross realized gains and losses and unrealized holding gains and losses
were not significant for any of the years presented.
C. INVENTORIES
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Inventories at FIFO cost:
Finished products $ 328.2 $ 274.7
Work in process and raw
materials 308.2 244.9
- -------------------------------------------------------------------------------
636.4 519.6
Less excess of FIFO cost
over LIFO (125.3) (126.1)
- -------------------------------------------------------------------------------
$ 511.1 $ 393.5
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
Inventories valued using the LIFO method comprised 55% of consolidated
inventories at FIFO or weighted average cost for both December 31, 1998 and
1997.
D. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment include the following:
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Land $ 63.4 $ 51.9
Buildings 486.7 441.3
Machinery and equipment 951.1 722.1
- -------------------------------------------------------------------------------
1,501.2 1,215.3
Less allowance for
depreciation (673.5) (549.4)
- -------------------------------------------------------------------------------
$ 827.7 $ 665.9
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(CURRENCIES IN MILLIONS EXCEPT PER SHARE AMOUNTS)
E. ACQUISITIONS AND SALE OF BUSINESSES
On June 2, 1998, PACCAR acquired Leyland Trucks Ltd., a manufacturer of
light- and medium-duty trucks in the United Kingdom. PACCAR used the purchase
method of accounting for the acquisition. The consolidated financial
statements include Leyland operations subsequent to the acquisition date.
Leyland's impact on consolidated results and financial position are not
material. In addition, due to the supplier-customer relationship of Leyland
to DAF, a substantial portion of Leyland's sales eliminate in consolidation.
In December 1997, PACCAR sold Trico Industries, its oilfield equipment
business, to an oil services company based in Houston, Texas, for $105 in
cash, resulting in a $55.7 pretax gain.
On November 15, 1996, PACCAR acquired all the outstanding shares of DAF
Trucks, N.V. (DAF), a truck manufacturer that also produces its own engines
and axles. Its core operations include development, production, marketing and
aftermarket parts sales for medium- and heavy-duty commercial trucks with
factories in the Netherlands and Belgium.
DAF was purchased for 900 Dutch guilders (NLG), or approximately $532.
PACCAR paid NLG 300 in cash and financed the remaining balance with
guilder-denominated debt.
DAF's operations have been included in the consolidated financial
statements since the date of acquisition.
The following unaudited pro forma consolidated results of operations for
the year ended December 31, 1996, reflect the DAF acquisition as though it
occurred at the beginning of the year after adjustments for the impact of
interest on acquisition debt, depreciation and amortization of assets,
including goodwill, to reflect the purchase price allocation. The pro forma
information is provided for information purposes only. It is based on
historical information and does not necessarily reflect the actual results
that would have occurred nor does it represent results that may occur in the
future.
<TABLE>
<CAPTION>
For the year ended December 31, 1996 (UNAUDITED)
- -------------------------------------------------------------------------------
<S> <C>
Manufacturing Revenues $5,900.0
Net Income 250.0
Net Income Per Share $ 3.22
- -------------------------------------------------------------------------------
</TABLE>
F. FINANCE AND OTHER RECEIVABLES
Terms for substantially all finance and other receivables range up to 60
months. Repayment experience indicates some receivables will be paid prior to
contracted maturity, while others will be extended or renewed.
The Company's finance and other receivables are as follows:
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Retail notes and contracts $2,667.9 $2,171.7
Wholesale financing 187.2 138.4
Direct financing leases 980.9 860.1
Interest and other receivables 21.5 18.3
- -------------------------------------------------------------------------------
3,857.5 3,188.5
Less allowance for losses (67.1) (57.5)
- -------------------------------------------------------------------------------
3,790.4 3,131.0
Unearned interest:
Retail notes and contracts (135.3) (123.4)
Direct financing leases (132.1) (113.7)
- -------------------------------------------------------------------------------
(267.4) (237.1)
$3,523.0 $2,893.9
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
Annual payments due on retail notes and contracts for the five years
beginning January 1, 1999, are $950.5, $750.8, $543.7, $309.7, $105.4 and
$7.8 thereafter.
Estimated residual values included with direct financing leases amounted
to $52.3 in 1998 and $43.0 in 1997. Annual minimum lease payments due on
direct financing leases for the five years beginning January 1, 1999, are
$267.2, $230.7, $192.1, $132.8, $68.8 and $37.0 thereafter.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996 (CURRENCIES IN MILLIONS)
G. ALLOWANCE FOR LOSSES
The allowance for losses on Truck and Other and Financial Services
receivables is summarized as follows:
<TABLE>
<CAPTION>
TRUCK FINANCIAL
AND OTHER SERVICES
- -------------------------------------------------------------------------------
<S> <C> <C>
Balance, January 1, 1996 $ 5.8 $56.8
Additions:
Provision for losses .5 5.2
Resulting from acquisitions 15.4
Net losses, including translation (2.5) (8.0)
- -------------------------------------------------------------------------------
Balance, December 31, 1996 19.2 54.0
Provision for losses 3.5 7.9
Net losses, including translation (2.4) (4.4)
- -------------------------------------------------------------------------------
Balance, December 31, 1997 20.3 57.5
Additions:
Provision for losses 7.1 14.0
Resulting from acquisitions .2
Net losses, including translation (.5) (4.4)
- -------------------------------------------------------------------------------
Balance, December 31, 1998 $27.1 $67.1
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
The Company's customers are principally concentrated in the
transportation industry. There are no significant concentrations of credit
risk in terms of a single customer or geographic region. Generally, financial
services receivables are collateralized by financed equipment.
H. EQUIPMENT ON OPERATING LEASES
Equipment leased to customers under operating leases is recorded at cost and
is depreciated on the straight-line basis to its estimated residual value.
Estimated useful lives are five years.
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Trucks and other equipment $82.1 $79.3
Less allowance for depreciation (16.8) (23.5)
- -------------------------------------------------------------------------------
$65.3 $55.8
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
Original terms of operating leases generally range up to 84 months.
Annual minimum lease payments due on operating leases for the five years
beginning January 1, 1999, are $14.0, $11.3, $8.2, $5.1 and $3.4.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996 (CURRENCIES IN MILLIONS)
I. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses include the following:
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Truck and Other:
Accounts payable $ 671.6 $ 533.1
Salaries and wages 130.0 127.1
Warranty and self-insurance
reserves 218.0 169.3
Other 274.3 217.8
- -------------------------------------------------------------------------------
$1,293.9 $1,047.3
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Financial Services:
Accounts payable $ 63.6 $ 61.7
Other 20.0 24.1
- -------------------------------------------------------------------------------
$ 83.6 $ 85.8
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
J. BORROWINGS AND CREDIT ARRANGEMENTS
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Truck and Other:
Long-term debt $243.1 $246.9
Less current portion (43.4) (14.6)
- -------------------------------------------------------------------------------
199.7 232.3
Capital lease obligations 5.0 4.7
Less current portion (.4) (.4)
- -------------------------------------------------------------------------------
4.6 4.3
- -------------------------------------------------------------------------------
$204.3 $236.6
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
The weighted average interest rate on the fixed portion of long-term debt
($163.9) was 4.9% at December 31, 1998. The interest rate on the floating
portion of long-term debt ($79.2) is based on the Amsterdam Interbank Offered
Rate and was 3.5% at December 31, 1998. Annual maturities for long-term debt
and capital leases for the five years beginning January 1, 1999, are $43.8,
$42.5, $39.4, $117.8 and $1.4, respectively.
<TABLE>
<CAPTION>
EFFECTIVE
RATE 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Financial Services:
Commercial paper 5.3% $1,511.5 $ 947.2
Bank loans 7.6% 106.3 139.5
- -------------------------------------------------------------------------------
1,617.8 1,086.7
- -------------------------------------------------------------------------------
Long-term debt:
Fixed rate 6.0% 963.9 922.7
Floating rate 5.8% 143.0 175.0
- -------------------------------------------------------------------------------
1,106.9 1,097.7
- -------------------------------------------------------------------------------
$2,724.7 $2,184.4
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
The effective rate is the weighted average rate as of December 31, 1998,
and includes the effects of interest-rate agreements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996 (CURRENCIES IN MILLIONS)
Annual maturities of long-term debt for the five years beginning January 1,
1999, are $431.7, $299.7, $255.9, $111.8 and $7.8, respectively.
CONSOLIDATED:
Interest paid on consolidated borrowings was $188.0 in 1998, $143.6 in
1997 and $133.3 in 1996.
The weighted average interest rate on consolidated commercial paper and
bank loans was 5.34%, 5.78% and 4.73% at December 31, 1998, 1997 and 1996,
respectively.
The Company has line of credit arrangements of $1,548.7, most of which
are reviewed annually for renewal. The unused portion of these credit lines
was $1,292.7 at December 31, 1998, of which the majority is maintained to
support commercial paper and other short-term borrowings of the financial
services companies. Compensating balances are not required on the lines, and
service fees are immaterial. In addition, at December 31, 1998, there was
$805 of medium-term debt available for issuance under a currently outstanding
shelf registration.
K. LEASES
The Company leases most store locations for its automotive parts sales
operations and various other office space under operating leases. Leases
expire at various dates through the year 2013.
Annual minimum rental payments due under operating leases for the five
years beginning January 1, 1999, are $26.1, $23.0, $18.7, $12.4, $10.6 and
$27.9 thereafter.
Minimum payments on leases have not been reduced by aggregate minimum
sublease rentals of $8.5 receivable under noncancelable subleases.
The Company has operating leases which, in addition to aggregate minimum
annual rentals, provide for additional rental payments based on sales and
certain expenses.
Total rental expenses under all leases for the three years ended
December 31, 1998, were $27.5, $19.1 and $15.8, net of sublease rentals of
$2.0, $2.1 and $2.0, respectively.
L. DERIVATIVE FINANCIAL INSTRUMENTS
Interest-Rate Contracts: The Company enters into various interest-rate
contracts, including interest-rate and currency swap, cap and forward-rate
agreements. These contracts are used to manage exposures to fluctuations in
interest rates. At December 31, 1998, the Company had 138 interest-rate
contracts outstanding with other financial institutions. The notional amount
of these contracts totaled $1,246, with amounts expiring annually over the
next five years. The notional amount is used to measure the volume of these
contracts and does not represent exposure to credit loss. In the event of
default by a counterparty, the risk in these transactions is the cost of
replacing the interest-rate contract at current market rates. The Company
monitors its positions and the credit ratings of its counterparties.
Management believes the risk of incurring losses is remote, and that if
incurred, such losses would be immaterial.
Floating to fixed rate swaps effectively convert an equivalent amount of
commercial paper and other variable rate debt to fixed rates. Notional
maturities for the five years beginning January 1, 1999, are $604.0, $408.8,
$151.5, $64.3, $12.9 and $4.0 thereafter. The weighted average pay rate of
5.7% approximates the Company's net cost of funds. The weighted average
receive rate of 5.4% offsets rates on associated debt obligations.
Foreign Currency Exchange Contracts: PACCAR enters into foreign currency
exchange contracts to hedge certain firm commitments denominated in foreign
currencies. As a matter of policy, the Company does not engage in currency
speculation. Foreign exchange contracts generally mature within six months.
At December 31, 1998 and 1997, PACCAR had net foreign exchange purchase
contracts outstanding amounting to $188 and $143 U.S. dollars, respectively.
Approximately 90% of the 1998 amount represented contracts related to the
U.S. and Canadian dollars. The remaining balance in 1998 represented
contracts related to Dutch guilders and the British pound.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996 (CURRENCIES IN MILLIONS)
M. COMMITMENTS AND CONTINGENCIES
The Company is involved in various stages of investigations and cleanup
actions in different countries related to environmental matters. In certain
of these matters, the Company has been designated as a Potentially
Responsible Party by the U.S. Environmental Protection Agency or by a
state-level environmental agency. The Company has provided for the estimated
costs to investigate and complete cleanup actions where it is probable that
the Company will incur such costs in the future.
While neither the timing nor the amount of the ultimate costs associated
with future environmental cleanup can be determined, management does not
expect that those matters will have a material adverse effect on the
Company's consolidated financial position.
At December 31, 1998, PACCAR had standby letters of credit outstanding
totaling $35, which guarantee various insurance and financing activities.
PACCAR is a defendant in various legal proceedings and, in addition,
there are various other contingent liabilities arising in the normal course
of business. After consultation with legal counsel, management does not
anticipate that disposition of these proceedings and contingent liabilities
will have a material effect on the consolidated financial statements.
N. RETIREMENT PLANS
PACCAR has several defined benefit pension plans which cover a majority of
its employees.
The following data relate to all pension plans of the Company except for
certain union-negotiated, multi-employer and foreign insured plans.
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted Average Assumptions as of December 31:
Discount rate 7.0% 7.5% 7.5%
Rate of increase in future
compensation levels 4.8% 4.8% 4.8%
Assumed long-term rate of
return on plan assets 8.0% 8.0% 8.0%
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Change in Benefit Obligation:
Benefit obligation at
January 1 $365.4 $319.2
Service cost 18.0 15.0
Interest cost 26.7 24.4
Actuarial loss 27.9 18.8
Acquisition of Leyland Trucks Ltd. 21.5
Benefits paid (11.8) (12.0)
- -------------------------------------------------------------------------------
Benefit obligation at
December 31 $447.7 $365.4
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Change in Plan Assets:
Fair value of plan assets at
January 1 $402.2 $342.0
Actual return on plan assets 57.1 65.7
Employer contributions 7.4 6.5
Acquisition of Leyland Trucks Ltd. 24.6
Benefits paid (11.8) (12.0)
- -------------------------------------------------------------------------------
Fair value of plan assets at
December 31 $479.5 $402.2
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996 (CURRENCIES IN MILLIONS)
Funded Status at December 31:
Funded status $ 31.8 $ 36.8
Unrecognized actuarial gain (62.4) (64.1)
Unrecognized prior service cost 10.6 8.9
Unrecognized net initial obligation .8 1.4
- -------------------------------------------------------------------------------
Net liability $(19.2) $(17.0)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Details of Net Asset (Liability) Recorded:
Prepaid benefit costs $ 13.3 $ 3.9
Accrued benefit liability (35.2) (22.9)
Intangible asset 2.7 2.0
- -------------------------------------------------------------------------------
Net liability $(19.2) $(17.0)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Components of Pension Expense:
Service cost $ 18.0 $ 15.0 $ 13.5
Interest on projected
benefit obligation 26.7 24.4 21.2
Expected return
on assets (29.1) (26.8) (23.4)
Amortization of prior
service costs 2.0 2.0 2.1
Recognized
actuarial gain (.4) (2.2) (2.5)
- -------------------------------------------------------------------------------
Net pension
expense $ 17.2 $ 12.4 $ 10.9
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
Pension expense for union-negotiated, multi-employer and foreign insured
plans was $16.7 in 1998, $14.3 in 1997, and $3.5 in 1996. Pension expense in
1998 and 1997 included $12.3 and $10.8, respectively, for a foreign insured
plan related to DAF Trucks, acquired at the end of 1996.
The Company has unfunded postretirement medical and life insurance plans
covering approximately one-half of all U.S. employees that reimburse retirees
for approximately 50% of their medical costs from retirement to age 65 and
provide a nominal death benefit.
The following data relate to unfunded postretirement medical and life
insurance plans.
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Change in Benefit Obligation:
Benefit obligation at January 1 $ 30.5 $ 29.7
Service cost 1.6 1.8
Interest cost 1.6 2.2
Amendments 2.7
Actuarial gain (6.8) (2.8)
Benefits paid (.5) (.4)
- -------------------------------------------------------------------------------
Benefit obligation at
December 31 $ 29.1 $ 30.5
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996 (CURRENCIES IN MILLIONS)
Unfunded Status at December 31:
Unfunded status $(29.1) $(30.5)
Unrecognized actuarial
(gain) loss (1.9) 4.8
Unrecognized prior service cost 3.1 .4
Unrecognized net initial obligation 6.1 6.6
- -------------------------------------------------------------------------------
Accrued postretirement
benefits $(21.8) $(18.7)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Components of Retiree Expense:
Service cost $ 1.6 $ 1.8 $ 1.7
Interest cost 1.6 2.2 2.0
Recognized actuarial
(gain) loss (.1) .2 .2
Recognized net initial
obligation .5 .5 .5
- -------------------------------------------------------------------------------
Net retiree expense $ 3.6 $ 4.7 $ 4.4
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
The discount rate and long-term medical inflation rate used for
calculating the accumulated plan benefits were 7.0% and 7.0%, respectively,
for 1998 and 7.5% and 7.0%, respectively, for 1997.
Assumed health care cost trends have a significant effect on the amounts
reported for the health care plans. A one-percentage-point change in assumed
health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1% 1%
INCREASE DECREASE
- -------------------------------------------------------------------------------
<S> <C> <C>
Effect on total of service
and interest cost
components $ .3 $ (.3)
Effect on accumulated
postretirement benefit
obligation $ 3.1 $ (2.8)
</TABLE>
The Company has certain defined contribution benefit plans whereby it
generally matches employee contributions of 2% to 5% of base wages. The
majority of participants in these plans are non-union employees located in
the United States. Expenses for these plans were $12.6, $11.8 and $12.3 in
1998, 1997 and 1996, respectively.
O. FOREIGN OPERATIONS AND CURRENCY TRANSLATION
For most of PACCAR's foreign subsidiaries, the local currency is the
functional currency and all assets and liabilities are translated at year-end
exchange rates and all income statement amounts are translated at an average
of the month-end rates. Adjustments resulting from this translation are
recorded in a separate component of stockholders' equity. Also included are
the effects of foreign denominated borrowings designated as hedges of certain
net foreign investments.
DAF uses the guilder as the functional currency to account for its
foreign subsidiaries and PACCAR uses the U.S. dollar as the functional
currency for its Mexican subsidiaries. Accordingly, for DAF's foreign
subsidiaries and PACCAR's Mexican subsidiaries, inventories, cost of sales,
property, plant and equipment, and depreciation were translated at historical
rates. Resulting gains and losses are included in net income.
Net foreign currency translations and transactions increased net income
by $3.1 in 1998 and $1.2 in 1996 and decreased net income by $.2 in 1997.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996 (CURRENCIES IN MILLIONS)
P. INCOME TAXES
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Income Before Income Taxes:
Domestic $385.3 $342.2 $271.5
Foreign 267.8 192.5 41.4
- -------------------------------------------------------------------------------
$653.1 $534.7 $312.9
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Provision for Income Taxes:
Current provision:
Federal $ 130.1 $123.5 $ 90.8
Foreign 92.3 55.0 6.8
State 17.4 12.6 13.3
- -------------------------------------------------------------------------------
239.8 191.1 110.9
Deferred provision
(benefit):
Federal and state (2.1) (8.0) (3.0)
Foreign (1.4) 7.0 4.0
- -------------------------------------------------------------------------------
(3.5) (1.0) 1.0
- -------------------------------------------------------------------------------
$ 236.3 $190.1 $111.9
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Reconciliation of Statutory U.S. Tax to Actual Provision:
Statutory rate 35% 35% 35%
Statutory tax $ 228.6 $187.2 $109.5
Effect of:
State income taxes 11.6 10.3 8.4
Foreign tax rates 5.0 3.8 (1.0)
FSC benefit (3.2) (2.4) (2.3)
Tax-exempt income (4.3) (4.5) (5.2)
Utilization of loss
carryforwards (4.3) (9.1)
Other 2.9 4.8 2.5
- -------------------------------------------------------------------------------
$ 236.3 $190.1 $111.9
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996 (CURRENCIES IN MILLIONS)
<TABLE>
<CAPTION>
At December 31: 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Components of Deferred Tax Assets (Liabilities):
Assets:
Provisions for accrued
expenses $ 121.8 $ 121.0
Allowance for losses on
receivables 31.1 20.7
Net operating losses 120.0 4.6
Other 35.8 19.0
- -------------------------------------------------------------------------------
308.7 165.3
Valuation reserve (120.0)
- -------------------------------------------------------------------------------
188.7 165.3
Liabilities:
Asset capitalization and
depreciation (46.0) (48.1)
Financing and leasing
activities (146.8) (136.6)
Other (60.1) (53.3)
- -------------------------------------------------------------------------------
(252.9) (238.0)
Net deferred tax liability $ (64.2) $ (72.7)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
At December 31: 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Classification of Deferred Tax Assets and Liabilities:
Truck and Other:
Deferred taxes and other
current assets $ 75.3 $ 67.5
Deferred taxes, goodwill
and other 17.4 13.6
Other, including
deferred taxes (30.0) (34.0)
Financial Services:
Deferred income taxes
and other (126.9) (119.8)
- -------------------------------------------------------------------------------
Net deferred tax liability $ (64.2) $ (72.7)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
United States income taxes are not provided on undistributed earnings of
the Company's foreign subsidiaries because of the intent to reinvest these
earnings. The amount of undistributed earnings, which are considered to be
indefinitely reinvested, is approximately $404.9 at December 31, 1998. While
the amount of any federal income taxes on these reinvested earnings, if
distributed in the future, is not presently determinable, it is anticipated
that the available foreign tax credits would substantially offset any
potential federal tax liability.
Leyland Trucks Ltd. net operating losses of approximately $390 were
recorded and fully reserved as utilization is limited by U.K. law.
Cash paid for income taxes was $228.3 in 1998, $163.6 in 1997 and $121.3
in 1996.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996 (CURRENCIES IN MILLIONS)
Q. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in determining
its fair value disclosures for financial instruments:
Cash and Equivalents: The carrying amount reported in the balance sheet
is stated at fair value.
Marketable Securities: Marketable securities consist of debt securities.
Fair values are based on quoted market prices.
Financial Services Net Receivables: For floating-rate loans and wholesale
financings, fair values are based on carrying values. For fixed-rate loans,
fair values are estimated using discounted cash flow analysis based on
interest rates currently being offered for loans with similar terms to
borrowers of similar credit quality. The carrying amount of accrued interest
and other receivables approximates its fair value. Direct financing lease
receivables and the related loss provisions are not included in net
receivables.
Short- and Long-term Debt: The carrying amount of the Company's
commercial paper and short-term bank borrowings and floating-rate long-term
debt approximates its fair value. The fair value of the Company's fixed-rate
long-term debt is estimated using discounted cash flow analysis, based on the
Company's current incremental borrowing rates for similar types of borrowing
arrangements.
Off-Balance-Sheet Instruments: Fair values for the Company's
interest-rate contracts are based on costs that would be incurred to
terminate existing agreements and enter into new agreements with similar
notional amounts, maturity dates and counterparties' credit standing at
current market interest rates. The fair value of foreign exchange contracts
is the amount the Company would receive or pay to terminate the contracts.
This amount is calculated using quoted market rates.
Trade Receivables and Payables: Carrying amounts approximate fair value
and have been excluded from the accompanying table.
The carrying amounts and fair values of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
1998 AMOUNT VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
Truck and Other:
Cash and equivalents $ 410.3 $ 410.3
Marketable securities 404.8 404.8
Long-term debt 243.1 247.5
Financial Services:
Cash and equivalents 22.1 22.1
Net receivables 2,694.5 2,697.4
Commercial paper and
bank loans 1,617.8 1,617.8
Long-term debt 1,106.9 1,120.8
</TABLE>
The Company's off-balance-sheet financial instruments consisted of
interest-rate agreements and foreign currency exchange contracts. The
interest-rate agreements represented an additional liability of $7.4, and the
foreign currency exchange contracts represented an additional liability of
$.1 if recorded at fair value at December 31, 1998.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(CURRENCIES IN MILLIONS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CARRYING FAIR
1997 AMOUNT VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
Truck and Other:
Cash and equivalents $ 318.6 $ 318.6
Marketable securities 357.0 357.0
Long-term debt 246.9 247.7
Financial Services:
Cash and equivalents 19.3 19.3
Net receivables 2,162.6 2,168.4
Commercial paper and
bank loans 1,086.7 1,086.7
Long-term debt 1,097.7 1,098.4
</TABLE>
The Company's off-balance-sheet financial instruments consisted of
interest-rate agreements and foreign currency exchange contracts. The
interest-rate agreements represented an additional liability of $2.6 and the
foreign currency exchange contracts represented an additional asset of $2.7
if recorded at fair value at December 31, 1997.
R. STOCK COMPENSATION PLANS
PACCAR uses the intrinsic value based method to account for stock options
granted to employees. Since the Company awards stock options to its employees
at an exercise price equal to the market price on the date of grant, no
compensation expense is recognized. The effect on net income and net income
per share of accounting for stock compensation expense through application of
the Black-Scholes option pricing model would have been as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Pro Forma:
Net income $414.3 $342.5 $199.5
Basic EPS 5.31 4.41 2.57
Diluted EPS 5.27 4.38 2.57
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
The following assumptions were used for grants in 1998, 1997 and 1996:
expected volatility of 38%, 31% and 34%; risk-free interest rate of 6.01%,
6.94% and 6.81%, and expected lives of 5 years.
Options granted over the three-year period ended December 31, 1998,
totaled approximately 315,600, 409,000 and 621,000 for 1998, 1997 and 1996
with per share exercise prices of $53.50, $36.63 and $24.75, respectively.
The fair value per share of options granted during this period amounted to
$17.17, $9.44 and $6.91 for 1998, 1997 and 1996, respectively. Options vest
at the beginning of the third year after the grant date.
At December 31, 1998, options representing 1.5 million shares were
outstanding with a weighted average exercise price of $32.58, of which
315,600 shares were exercisable. On January 1, 1999, approximately 550,000
additional shares became exercisable at a price of $24.75.
All share amounts have been adjusted for the effects of the stock split
declared in 1997.
S. STOCKHOLDERS' EQUITY
Changes in the Company's common stock are summarized as follows:
<TABLE>
<S> <C>
Balance, January 1, 1996 38,862,359
Stock options exercised 8,919
- -------------------------------------------------------------------------------
Balance, December 31, 1996 38,871,278
Stock options exercised 48,567
Stock split 38,906,927
- -------------------------------------------------------------------------------
Balance, December 31, 1997 77,826,772
Stock options exercised 304,013
- -------------------------------------------------------------------------------
Balance, December 31, 1998 78,130,785
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996 (CURRENCIES IN MILLIONS)
Other Comprehensive Income: Changes in unrealized investment holding gains or
losses, reclassification adjustments and related tax effects were immaterial
for the three years ended December 31, 1998.
Reduction in Par Value and Increase in Number of Authorized Shares: At
the Annual Meeting held on April 29, 1997, the stockholders approved an
amendment to the Certificate of Incorporation reducing the par value of the
common stock from $12 to $1 per share, and increasing the number of
authorized shares of common stock from 100 million to 200 million. As a
result of the reduction in par value, the common stock account was reduced by
$427.8 and the additional paid-in capital account was increased by the same
amount.
Stock Split: On April 29, 1997, the Board of Directors declared a
two-for-one stock split which was paid on May 21, 1997, to stockholders of
record at the close of business on May 9, 1997. All per share figures
presented have been adjusted for the effects of the stock split.
Stockholder Rights Plan: The plan provides one right for each share of
PACCAR common stock outstanding. Rights become exercisable if a person
publicly announces the intention to acquire 15% or more of PACCAR's common
stock or if a person (Acquiror) acquires such amount of common stock. In all
cases, rights held by the Acquiror are not exercisable. When exercisable,
each right entitles the holder to purchase for two hundred dollars a
fractional share of Series A Junior Participating Preferred Stock. Each
fractional preferred share has dividend, liquidation and voting rights which
are no less than those for a share of common stock. Under certain
circumstances, the rights may become exercisable for shares of PACCAR common
stock or common stock of the Acquiror having a market value equal to twice
the exercise price of the right. Also under certain circumstances, the Board
of Directors may exchange exercisable rights, in whole or in part, for one
share of PACCAR common stock per right. The rights, which expire in the year
2009, may be redeemed at one cent per right, subject to certain conditions.
For this plan, 50,000 preferred shares are reserved for issuance. No shares
have been issued.
T. SEGMENT AND RELATED INFORMATION
PACCAR operates in two principal industries, Trucks and Financial Services.
The Truck segment is composed of the manufacture of trucks and the
distribution of related parts which are sold through a network of
company-appointed dealers. This segment derives a large proportion of its
revenues and operating profits from operations in the United States and
Europe. Truck revenues and operating profits include operations of Leyland
Trucks Ltd. from June 1998 (the date of acquisition) and DAF Trucks, N.V.
from date of acquisition in November 1996.
The Financial Services segment is composed of finance and leasing
services provided to truck customers and dealers. Revenues and income before
taxes are primarily generated from operations in the United States.
Included in All Other are the following: PACCAR's automotive parts sales
and related services business conducted through company-operated retail
stores, and the industrial winch business, which includes design,
manufacturing and marketing operations. Also included here are other sales,
income and expense not attributable to a reportable segment, including a
portion of corporate expense.
Sales between reportable segments were insignificant. Geographic revenues
from external customers are presented based on the country of the customer.
PACCAR evaluates the performance of its Truck segment based on operating
profits which excludes investment income, goodwill amortization, other income
and expense and income taxes. The Financial Services segment's performance is
evaluated based on income before income taxes.
<TABLE>
<CAPTION>
BUSINESS SEGMENT DATA: 1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Net sales
Trucks $ 7,270.4 $ 6,157.8 $ 4,019.2
All other 307.3 321.6 315.2
- -------------------------------------------------------------------------------
7,577.7 6,479.4 4,334.4
Financial Services
revenues 317.1 284.3 267.9
- -------------------------------------------------------------------------------
$ 7,894.8 $ 6,763.7 $ 4,602.3
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996 (CURRENCIES IN MILLIONS)
Truck operating
profit $ 534.3 $ 376.8 $ 204.1
All other 37.2 20.4 17.2
Interest expense (18.1) (17.6) (4.2)
- -------------------------------------------------------------------------------
553.4 379.6 217.1
Financial Services
income before taxes 62.2 71.3 68.3
Gain on sale of
subsidiary 55.7
Investment income 33.3 24.7 25.8
Other, net 4.2 3.4 1.7
- -------------------------------------------------------------------------------
$ 653.1 $ 534.7 $ 312.9
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
BUSINESS SEGMENT DATA: 1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Depreciation and amortization:
Trucks $ 91.7 $ 74.3 $ 46.2
Financial Services 13.3 16.4 17.1
Other 18.9 21.3 17.8
- -------------------------------------------------------------------------------
$ 123.9 $ 112.0 $ 81.1
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Expenditures for long-lived assets:
Trucks $ 142.9 $ 86.2 $ 88.5
Financial Services 35.9 30.0 15.4
Other 44.0 16.8 19.3
- -------------------------------------------------------------------------------
$ 222.8 $ 133.0 $ 123.2
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Segment assets:
Trucks $ 2,104.1 $ 1,752.0 $ 1,757.2
Other 240.4 177.9 212.0
Cash and marketable
securities 815.1 675.6 507.9
- -------------------------------------------------------------------------------
3,159.6 2,605.5 2,477.1
Financial Services 3,635.2 2,993.9 2,821.7
- -------------------------------------------------------------------------------
$ 6,794.8 $ 5,599.4 $ 5,298.8
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
GEOGRAPHIC AREA DATA: 1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
United States $ 4,466.6 $ 3,835.6 $ 3,614.9
Other 3,428.2 2,928.1 987.4
- -------------------------------------------------------------------------------
$ 7,894.8 $ 6,763.7 $ 4,602.3
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Long-lived assets:
Property, plant and equipment, net
United States $ 420.4 $ 361.3 $ 384.0
The Netherlands 187.3 168.7 200.8
Other 220.0 135.9 147.8
- -------------------------------------------------------------------------------
$ 827.7 $ 665.9 $ 732.6
- -------------------------------------------------------------------------------
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996 (CURRENCIES IN MILLIONS)
Goodwill and other, net
United States $ 12.5 $ 12.1 $ 23.0
The Netherlands 114.8 110.3 108.4
Other 2.3
- -------------------------------------------------------------------------------
$ 129.6 $ 122.4 $ 131.4
- -------------------------------------------------------------------------------
Equipment on operating leases, net
United States $ 43.5 $ 46.0 $ 42.8
Other 21.8 9.8 2.1
- -------------------------------------------------------------------------------
$ 65.3 $ 55.8 $ 44.9
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders
PACCAR Inc
We have audited the accompanying consolidated balance sheets of PACCAR Inc
and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of income, stockholders' equity, comprehensive income
and cash flows for each of the three years in the period ended December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
PACCAR Inc and subsidiaries at December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Seattle, Washington
February 16, 1999
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
- ------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------
(millions except per share data)
<S> <C> <C> <C> <C> <C>
Net Sales $7,577.7 $6,479.4 $4,334.4 $4,592.9 $4,294.2
Financial Services Revenue 317.1 284.3 267.9 257.5 210.9
Net Income 416.8 344.6 201.0 252.8 204.5
Net Income Per Share:
Basic 5.34 4.43 2.59 3.25 2.63
Diluted 5.30 4.41 2.59 3.25 2.63
Cash Dividends Declared 2.20 2.075 1.25 2.00 1.50
Total Assets:
Truck and Other 3,159.6 2,605.5 2,477.1 1,646.2 1,562.7
Financial Services 3,635.2 2,993.9 2,821.7 2,744.3 2,365.5
Long-Term Debt:
Truck and Other 204.3 236.6 32.9 10.7 11.1
Financial Services 1,106.9 1,097.7 1,112.0 1,149.6 999.9
Stockholders' Equity $1,764.2 $1,497.8 $1,358.0 $1,251.2 $1,174.5
- ------------------------------------------------------------------------------------------------
</TABLE>
All per share amounts have been restated to give effect to a two-for-one
stock split declared in 1997.
<PAGE>
QUARTERLY RESULTS (UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
QUARTER
FIRST SECOND THIRD FOURTH
- -------------------------------------------------------------------------------------------------------------------
1998 (millions except per share data)
<S> <C> <C> <C> <C>
Net Sales $ 1,752.3 $ 1,849.4 $ 1,857.3 $ 2,118.7
Truck and Other Gross Profit (Before SG&A and Interest) 263.9 281.1 275.0 326.7
Financial Services Gross Profit (Before SG&A) 30.8 31.9 32.7 33.9
Net Income 100.4 104.9 96.6 114.9
Net Income Per Share:
Basic $ 1.29 $ 1.34 $ 1.24 $ 1.47
Diluted 1.28 1.33 1.23 1.46
- -------------------------------------------------------------------------------------------------------------------
1997
Net Sales $ 1,444.8 $ 1,590.5 $ 1,639.2 $ 1,804.9
Truck and Other Gross Profit (Before SG&A and Interest) 190.5 223.8 237.1 278.7
Financial Services Gross Profit (Before SG&A) 29.9 30.7 31.6 32.7
Net Income 57.9 71.5 82.5 132.7
Net Income Per Share:
Basic $ .74 $ .92 $ 1.06 $ 1.71
Diluted .74 .92 1.05 1.70
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Net income per share amounts have been restated to give effect to a
two-for-one stock split declared in 1997. Fourth quarter 1997 net income
includes a $35 after-tax gain on sale of Trico Industries.
COMMON STOCK MARKET PRICES AND DIVIDENDS
- -------------------------------------------------------------------------------
Common stock of the Company is traded on the Nasdaq National Market under the
symbol PCAR. The table below reflects the range of trading prices as reported
by Nasdaq and cash dividends declared. All amounts have been restated to give
effect to a two-for-one stock split paid in May of 1997. There were 2,885
record holders of the common stock at December 31, 1998.
<TABLE>
<CAPTION>
1998 CASH DIVIDENDS STOCK PRICE 1997 CASH DIVIDENDS STOCK PRICE
QUARTER DECLARED HIGH LOW QUARTER DECLARED HIGH LOW
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
First $.15 $66 3/4 $47 1/2 First $.125 $38 5/16 $30 5/16
Second .15 63 50 5/8 Second .15 54 31/64 33 7/8
Third .15 53 40 Third .15 57 42 3/4
Fourth .15 50 1/2 37 Fourth .15 59 1/2 39 3/8
Year-End Extra 1.60 Year-End Extra 1.50
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company expects to continue paying regular cash dividends, although there
is no assurance as to future dividends because they are dependent upon future
earnings, capital requirements and financial conditions.
<PAGE>
MARKET RISKS AND DERIVATIVE INSTRUMENTS
- -------------------------------------------------------------------------------
In the normal course of business, PACCAR holds or issues various financial
instruments which expose the Company to market risk associated with market
currency exchange rates and interest rates. Policies and procedures have been
established by the Company to manage these market risks through the use of
various derivative financial instruments. The Company does not engage in
derivatives trading, market-making or other speculative activities.
CURRENCY RISKS
See Note A for a description of the Company's exposure to currency risks.
To mitigate the short-term impact of changes in currency exchange rates,
PACCAR regularly enters into currency exchange agreements to hedge 50-100% of
its U.S. dollar denominated exposure in Canada over a period of 3 to 6 months.
At December 31, 1998 the Company had U.S. dollar obligations of $99.4
related to firmly committed sales orders denominated in Canadian dollars. The
Canadian plant construction has forecasted U.S. dollar obligations amounting
to $30.7. All transactions are expected to occur in 1999. The Company has
related forward contracts to sell Canadian dollars for U.S. dollars in the
notional amount of $130.0 to occur in 1999. Dutch guilder hedging activity at
year-end was not material.
INTEREST RATE RISKS
See Note L for a description of the Company's exposure to interest rate
risks.
The following table presents instruments which are subject to market risk
exposure and, where applicable, the derivatives which are used to manage that
risk.
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
------------------------------------------------------------------------------
(MILLIONS OF DOLLARS) 1999 2000 2001 2002 2003 THEREAFTER
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED:
Cash Equivalents and Marketable Securities:
Fixed rate $ 444.7 $ 133.2 $ 221.2 $ 4.3 $ .4 $ 1.0
Average interest rate 4.4% 4.2% 4.0% 4.3% 4.3% 7.6%
Variable rate $ .3 $ 10.0
Average interest rate 5.1% 5.0%
TRUCK AND OTHER:
Liabilities
Fixed rate Long-term debt $ 43.4 $ 42.2 $ 39.1 $ 38.2 $ 1.0
Average interest rate 5.0% 5.0% 4.8% 4.8% 6.6%
Variable rate Long-term debt $ 79.2
Average interest rate 3.5%
FINANCIAL SERVICES:
Assets
Retail notes, contracts and wholesale financing, net of unearned interest,
less allowance for losses:
Fixed rate $ 760.5 $ 641.7 $ 465.3 $ 268.1 $ 90.9 $ 6.0
Average interest rate 8.55% 8.39% 8.26% 8.02% 7.95% 7.48%
Variable rate $ 303.4 $ 57.7 $ 46.0 $ 24.8 $ 6.8 $ .9
Average interest rate 6.56% 6.36% 6.41% 6.54% 5.94% 6.81%
Liabilities
Commercial paper
and bank loans $ 1,617.8
Average interest rate 5.2%
Long-term Debt:
Fixed rate $ 292.1 $ 297.3 $ 255.1 $ 111.7 $ 7.4 $ .3
Average interest rate 6.2% 6.1% 6.1% 5.9% 6.3% 7.2%
Variable rate $ 140.0 $ 2.2 $ .7 $ .1
Average interest rate 6.3%
Interest Rate Derivative Financial Instruments Related To Debt:
Interest rate swaps:
Pay fixed - receive variable $ 604.0 $ 408.8 $ 151.5 $ 64.3 $ 12.9 $ 4.0
Average pay rate 5.84% 5.66% 5.30% 5.54% 5.83% 5.37%
Average receive rate 5.45% 5.36% 5.21% 5.23% 5.28% 5.00%
<CAPTION>
FAIR
(MILLIONS OF DOLLARS) TOTAL VALUE
- ------------------------------------------------------------
<S> <C> <C>
CONSOLIDATED:
Cash Equivalents and Marketable Securities:
Fixed rate $ 804.8 $ 804.8
Average interest rate 4.3%
Variable rate $ 10.3 $ 10.3
Average interest rate 5.0%
TRUCK AND OTHER:
Liabilities
Fixed rate Long-term debt $ 163.9 $ 168.3
Average interest rate 4.9%
Variable rate Long-term debt $ 79.2 $ 79.2
Average interest rate 3.5%
FINANCIAL SERVICES:
Assets
Retail notes, contracts and wholesale financing,
net of unearned interest, less allowance for losses:
Fixed rate $ 2,232.5 $ 2,236.0
Average interest rate 8.35%
Variable rate $ 439.6 $ 439.6
Average interest rate 6.51%
Liabilities
Commercial paper $ 1,617.8 $ 1,617.8
and bank loans
Average interest rate 5.2%
Long-term Debt:
Fixed rate $ 963.9 $ 977.8
Average interest rate 6.1%
Variable rate $ 143.0 $ 143.0
Average interest rate 6.9%
Interest Rate Derivative Financial Instruments Related To Debt:
Interest rate swaps:
Pay fixed - receive variable $ 1,245.5 $ (7.4)
Average pay rate 5.70%
Average receive rate 5.38%
</TABLE>
<PAGE>
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
State or
Country of Names Under Which Company Or
Name(a) Incorporation Subsidiaries Do Business
- -------------------------- ------------- ----------------------------
<S> <C> <C>
PACCAR of Canada Ltd. Canada PACCAR of Canada Ltd.
Canadian Kenworth Co.
Peterbilt of Canada
PACCAR Parts of Canada
PACCAR Australia Pty. Ltd. Australia PACCAR Australia Pty. Ltd.
Kenworth Trucks
PACCAR Financial Pty. Ltd. Australia PACCAR Financial Pty. Ltd.
PACCAR U.K. Ltd. Delaware PACCAR U.K. Ltd.
Foden Trucks
PACCAR Mexico, S.A. de C.V. Mexico PACCAR Mexico, S.A. de C.V.
KENFABRICA, S.A. de C.V.
KENCOM, S.A. de C.V.
Kenworth Mexicana S.A. de C.V.
PACCAR Parts Mexico S.A. de C.V.
PACCAR Capital Mexico S.A. de C.V.
Paclease Mexicana S.A. de C.V.
PACCAR Arrendadora Financiera
S.A. de C.V.
PACCAR Financial Corp. Washington PACCAR Financial Corp.
PACCAR Financial Services Ltd. Canada PACCAR Financial Services Ltd.
PACCAR Leasing Corporation Delaware PACCAR Leasing Corporation
PacLease
PACCAR Automotive, Inc. Washington Grand Auto
Al's Auto Supply
PACCAR Sales North America, Inc. Delaware PACCAR Sales North America
PACCAR Holding B.V.(b) Netherlands PACCAR Holding B.V.
DAF Trucks, N.V.(c) Netherlands DAF Trucks, N.V.
Leyland DAF
DAF Trucks Vlaanderen N.V.(d) Belgium DAF Trucks Vlaanderen N.V.
Leyland DAF Trucks Ltd.(d) United Kingdom Leyland DAF Trucks Ltd.
Leyland Trucks Limited(e) England and Wales Leyland Trucks Limited
</TABLE>
(a) The names of some subsidiaries have been omitted. Considered in the
aggregate, omitted subsidiaries would not constitute a significant
subsidiary.
(b) A wholly owned subsidiary of PACCAR Sales North America, Inc.
(c) A wholly owned subsidiary of PACCAR Holding B.V.
(d) A wholly owned subsidiary of DAF Trucks, N.V.
(e) A subsidiary of Kepacourt Limited, an England and Wales corporation
which is a subsidiary of PACCAR Trucks U.K. Ltd., an England and Wales
corporation which is a subsidiary of PACCAR Holding B.V.
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of PACCAR Inc of our report dated February 16, 1999, included in the 1998 Annual
Report to Shareholders of PACCAR Inc.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 2-83673) pertaining to the 1981 Long-Term Incentive Plan and in
the Registration Statement (Form S-8 No. 33-47763) pertaining to the 1991
Long-Term Incentive Plan of PACCAR Inc of our report dated February 16, 1999,
with respect to the consolidated financial statements of PACCAR Inc incorporated
by reference in the Annual Report (Form 10-K) for the year ended December 31,
1998.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Seattle, Washington
March 24, 1999
<PAGE>
Exhibit 24
POWER OF ATTORNEY
We, the undersigned directors of PACCAR Inc, a Delaware corporation, hereby
severally constitute and appoint M. C. Pigott, our true and lawful
attorney-in-fact, with full power to sign for us, and in our names in our
capacity as director, a Form 10-K on behalf of the Company for the year ending
December 31, 1998, to be filed with the Securities and Exchange Commission under
the Securities Exchange Act of 1934, as amended.
IN WITNESS WHEREOF, each of the undersigned has executed this power of attorney
as of this 10th day of December 1998.
<TABLE>
<S> <C>
/s/J. M. Fluke, Jr. /s/J. C. Pigott
- ----------------------- ------------------------
J. M. Fluke, Jr. J. C. Pigott
Director, PACCAR Inc Director, PACCAR Inc
/s/G. Grinstein /s/J. W. Pitts
- ----------------------- ------------------------
G. Grinstein J. W. Pitts
Director, PACCAR Inc Director, PACCAR Inc
/s/C. H. Hahn /s/W. G. Reed, Jr.
- ----------------------- ------------------------
C. H. Hahn W. G. Reed, Jr.
Director, PACCAR Inc Director, PACCAR Inc
/s/D. J. Hovind /s/M. A. Tembreull
- ----------------------- ------------------------
D. J. Hovind M. A. Tembreull
Director, PACCAR Inc Director, PACCAR Inc
/s/C. M. Pigott
- -----------------------
C. M. Pigott
Director, PACCAR Inc
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF INCOME FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998,
1997, AND 1996, AND FROM THE CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 1998
AND 1997 OF PACCAR INC AND SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 432,400
<SECURITIES> 404,800
<RECEIVABLES> 4,262,800
<ALLOWANCES> 94,200
<INVENTORY> 511,100
<CURRENT-ASSETS> 0
<PP&E> 1,583,300
<DEPRECIATION> 690,300
<TOTAL-ASSETS> 6,794,800
<CURRENT-LIABILITIES> 0
<BONDS> 1,311,200
0
0
<COMMON> 78,100
<OTHER-SE> 1,686,100
<TOTAL-LIABILITY-AND-EQUITY> 6,794,800
<SALES> 7,577,700
<TOTAL-REVENUES> 7,894,800
<CGS> 6,431,000
<TOTAL-COSTS> 6,604,800
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 21,100
<INTEREST-EXPENSE> 18,100
<INCOME-PRETAX> 653,100
<INCOME-TAX> 236,300
<INCOME-CONTINUING> 416,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 416,800
<EPS-PRIMARY> 5.34
<EPS-DILUTED> 5.30
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF INCOME FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997,
1996, AND 1995, AND FROM THE CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 1997
AND 1996 OF PACCAR INC AND SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 337,900
<SECURITIES> 357,000
<RECEIVABLES> 3,572,000
<ALLOWANCES> 77,800
<INVENTORY> 393,500
<CURRENT-ASSETS> 0
<PP&E> 1,294,600
<DEPRECIATION> 572,900
<TOTAL-ASSETS> 5,599,400
<CURRENT-LIABILITIES> 0
<BONDS> 1,334,300
0
0
<COMMON> 77,800
<OTHER-SE> 1,420,000
<TOTAL-LIABILITY-AND-EQUITY> 5,599,400
<SALES> 6,479,400
<TOTAL-REVENUES> 6,763,700
<CGS> 5,549,300
<TOTAL-COSTS> 5,700,800
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 11,400
<INTEREST-EXPENSE> 17,600
<INCOME-PRETAX> 534,700
<INCOME-TAX> 190,100
<INCOME-CONTINUING> 344,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 344,600
<EPS-PRIMARY> 4.43
<EPS-DILUTED> 4.41
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF INCOME FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996,
1995, AND 1994, AND FROM THE CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 1996
AND 1995 OF PACCAR INC AND SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 222,900
<SECURITIES> 304,900
<RECEIVABLES> 3,370,600
<ALLOWANCES> 73,200
<INVENTORY> 406,500
<CURRENT-ASSETS> 0
<PP&E> 1,330,200
<DEPRECIATION> 552,700
<TOTAL-ASSETS> 5,298,800
<CURRENT-LIABILITIES> 0
<BONDS> 1,144,900
0
0
<COMMON> 466,400
<OTHER-SE> 891,600
<TOTAL-LIABILITY-AND-EQUITY> 5,298,800
<SALES> 4,334,400
<TOTAL-REVENUES> 4,602,300
<CGS> 3,737,300
<TOTAL-COSTS> 3,884,900
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 5,700
<INTEREST-EXPENSE> 4,200
<INCOME-PRETAX> 312,900
<INCOME-TAX> 111,900
<INCOME-CONTINUING> 201,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 201,000
<EPS-PRIMARY> 2.59
<EPS-DILUTED> 2.59
</TABLE>
